The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 2.5% during the third quarter of 2011. That’s below the average postwar growth rate of 3.2% and well below the 4.3% growth for an average expansion quarter. Even so, it’s better than any of the previous 3 quarters, and better than many analysts had been expecting when the quarter began in July.
The relatively favorable numbers helped bring the Econbrowser Recession Indicator Index down to 10.3% for 2011:Q2. This is an assessment looking back at the second quarter using today’s reported GDP figures, and is based on growth rates rather than levels. Although this has been a disappointing recovery, it has nonetheless been characterized by ongoing growth rather than contraction.
The growth in 2011:Q3 GDP was led by solid consumer spending and encouraging strength in business purchases of equipment and software, with the latter contributing 1.2 percentage points to the 2.5% total all by itself. An investment- and net export-led recovery would be the ideal scenario, if it can continue. Inventory cutbacks subtracted 1.1%, which means that real final sales registered an encouraging 3.6% annual growth rate and suggests that fourth-quarter GDP growth could be better than the third. Housing remains stuck in its own depression, but since there’s no quarter-to-quarter change, it’s making no contribution, positive or negative, to the observed GDP growth rates. And no, the chart below has not mistakenly omitted the government sector’s contribution to third-quarter growth– the slight increase in federal defense spending was exactly offset by cuts in other categories of federal, state, and local spending, for a net contribution from this sector of exactly zero.
John Silvia of Wells Fargo summed it up nicely:
Modest growth, no recession, still a slow paced recovery but recovery nonetheless.