Tuesday, December 22, 2009

A larger than expected revision 

Looking backwards is often useful, and particularly when you need to change the story of our supposed recovery. I had asked after the initial report of 3.5% GDP growth in Q3 "How much of our third quarter GDP growth is due to this stimulus?" The revision of data to a 2.2% gain makes that question all the more interesting. In that post I showed that disposable personal income less transfers was still declining in the third quarter -- that has not changed. What has?
The "third" estimate of the third-quarter increase in real GDP is 0.6 percentage point, or $17.3 billion, lower than the second estimate issued last month, primarily reflecting downward revisions to nonresidential fixed investment, to private inventory investment, and to personal consumption expenditures.
The way many forecasters will read these results is that the inventory correction that is expected to crank up Q4 GDP will now be larger. That is, a smaller Q3 number will imply a higher Q4 number. Real final sales in Q3 were up 1.5%, but GDP excluding output of motor vehicles rose only 0.8% after declining 0.9% in Q2.

I am quite eagerly awaiting the November data on income and outlays, due out tomorrow morning. Personal savings is now tracking in a pattern of 4.5-5% of GDP, well above levels earlier in the decade, as families continue to rebuild their portfolios. GDP growth is likely to be slow in 2010 if this number gets and stays above 5%.

Best news in the report: inflation as measured by the deflator for personal consumption expenditures was revised downward.

The news in Minnesota is not much better. Private sector employment in the state is still down 3.4% in the 12 months to November, and the latest Federal Reserve Bank of Minneapolis forecast is for another 0.4% decrease in employment in 2010. They expect the unemployment rate in the state to remain stuck at about 8%. In one bit of good news, the Philadelphia Fed's state coincident indicators series shows Minnesota with a green color, with a bit of expansion off an August low. I wouldn't get carried away about this just yet, but it beats being red for as long as we have. Look for more in our latest Quarterly Business Report, which will be out on Monday next week.

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