Economic growth picked up moderately in the third quarter, with the final estimate of GDP coming in at 2.6 percent compared to the 1.7 percent rate posted in the second quarter. The final estimate was revised upward only slightly from the previous month’s estimate of 2.5 percent. The third …
Economic growth picked up moderately in the third quarter, with the final estimate of GDP coming in at 2.6 percent compared to the 1.7 percent rate posted in the second quarter. The final estimate was revised upward only slightly from the previous month’s estimate of 2.5 percent. The third estimate was more of a fine-tuning compared to the initial November revision (from the “advance” to the second estimate), which pushed reported GDP growth up from 2.0 percent to 2.5 percent.
Inventory restocking continued to be strong in the third quarter, as inventory investment contributed 1.6 percentage points to GDP growth. The inventory cycle initiated during the recession has lifted GDP growth for much of the year, but it is likely to have run its course. We look for smaller contributions in the fourth quarter and into 2011. Foreign trade was the biggest drag on growth in the third quarter, as imports jumped 16 percent and export growth slowed to just 6.7 percent. In all, foreign trade subtracted 1.7 percentage points from third-quarter GDP growth. We expect the deceleration in exports to be temporary, as rapid growth in the emerging-market economies and a weak dollar turn the net export contribution from negative to positive. Also, the surge in import growth should slow as demand from inventory rebuilding diminishes.
Employment continued a gradual recovery in December, with 103,000 jobs added to payrolls, but this growth was about 40,000 short of analysts’ expectations. The October and November numbers were revised higher by a combined 70,000 jobs. Over the entire October-December period, the economy generated an average monthly addition of 128,000 jobs. The household survey told a different story in December, as the unemployment rate dropped 0.4 percentage point from 9.8 percent in November to 9.4 percent, far lower than expectations. Household employment rose 297,000, nearly three times more than payroll empoyment. The big drop in the unemployment rate, though, was also the result of 260,000 people leaving the labor force. The labor force participation rate fell from 64.5 percent to 64.3 percent for a new cyclical low. The employment-to-population ratio, a somewhat more stable measure of labor market conditions, ticked up 0.1 percentage point to 58.3 percent, well short of the 63.4 percent rate recorded prior to the recession.
Inflation appears to be stabilizing, but further disinflation remains more of a near-term concern than rising inflation. Wage pressures are nonexistent. Anemic compensation growth and moderating productivity improvements imply further declines in the unit labor cost of production. Commodity price pressures are on the rise, but these are much smaller inflation catalysts than labor costs. The core consumer price index (which excludes food and energy prices) was up only 0.7 percent over the past 12 months in November compared to a 1.0 percent rate recorded as recently as August 2010. Year-over-year core personal consumption expenditures, watched more closely by Federal Reserve policymakers, ran at a similar 0.8 percent rate in November. Both measures fall well below the 1.7 –2.0 percent long-term range favored by the Federal Open Market Committee. [2011-01-11]