The government released two economic reports last week which, on the surface, indicates that the economy was strengthening in the second half of 2013. Of course there's more to it than that. Economic growth for the third quarter was revised up to 3.6% (from an initial report of 2.8%). Does that mean growth and demand were picking up? Not quite. About half of the growth for the quarter was due to an increase in inventories; final sales rose by 1.9% (in line with the previous trend). In fact, both consumer spending and business investment increased at a slower rate in the third quarter compared to the second quarter. This was offset somewhat by somewhat faster growth in state/local government spending. Also, another measure of economic growth, gross domestic income, rose by 1.4% in the third quarter (after growing more quickly than GDP in recent quarters). What does this mean? More of the same. The recent trend in economic growth has been about 2%.
The other major economic news was the November Employment report, which showed an increase of 203,000 jobs with the unemployment rate falling to 7%. Is this good news? Yes, but not as good as it appears on the surface. If you have read this blog before, you probably know what's coming next. The main reason for the decline in the unemployment rate in recent months (and recent years) is the decline in the participation rate (a smaller portion of the population participating in the job market). The participation rate fell from 63.2% in September to 63% in November (was 62.8% in October). If it had remained at 63.2%, the unemployment rate would have been 7.3% in November (a slight increase rather than a decline of 0.2%). The quality of the jobs added appeared to improve somewhat in November compared to previous months, with a higher portion of jobs in relatively high-paying industries such as construction and manufacturing and a smaller share in relatively low-paying industries compared to previous months.
Together, the two reports suggest that the economy continues to grow at a modest pace: an underlying growth rate of 2% with about 200,000 jobs per month.