Thursday, October 27, 2011

A First look at third quarter GDP

Today's GDP report came in as expected, with economic growth of 2.5% in the third quarter.  Business investment continues to be a strength, increasing at an annualized rate of 16.3% (both equipment investment and investment in structures performed well).  Consumer spending increasing at a slightly faster pace than in the second quarter (2.5%), led by a bounceback in purchases of durable goods.  Inventories grew more slowly, thus subtracting about a percent from economic growth (a good sign that companies are not likely to face a need to significantly reduce inventories in the coming quarters).  So far, it sounds like a pretty good report.  However, real disposable income declined at a 1.7% annual rate, following a 0.6% increase in the second quarter.  It was the first decline since 2009 and real income per capita is now slightly below what it was in Spring 2010.  Add it up and it points toward a continuation of a sluggish recovery as consumers remained constrained by stagnant income and high debt levels.