Gross domestic product rose at a 2.8 percent annualized rate over the third quarter, beating analyst expectations and, at first glance, painting an optimistic picture of the U.S. economy. That is certainly how Jason Furman, chairman of the White House's Council of Economic Advisers, portrayed the situation.
Real GDP rose at a 2.8% annual pace in Q3; fastest quarterly pace in the last year; & 10th consecutive Q of growth pic.twitter.com/HzVtu2ClEr
— Jason Furman (@CEAChair) November 7, 2013
The problem? While the economy expanded, it wasn't because people were spending more. It was because businesses were stockpiling inventory. The Washington Post's Neil Irwin explains why this isn't a good thing:
Inventory increases can happen for either good or bad reasons — perhaps businesses were feeling optimistic about the future and wanted to stock up, or perhaps demand for their products was below forecasts, so inventories built up unintentionally. But either way, any growth (or contraction) owing to inventory shifts should be non-repeating. [Washington Post]
That means we shouldn't expect a similar rate of GDP growth in the next Commerce Department report — which, by the way, will include data from October, when the government shut down for two weeks. A full 0.83 percent of the 2.8 percent growth between July through September came from inventory accumulation.
Consumer spending, on the other hand, failed to meet expectations, growing by only 1.5 percent, the slowest rate since spring of 2011. That is problematic, reports the Financial Times, because "while businesses are anticipating growth to pick up — and restocking — actual demand is not so strong at the moment."
There were some bright spots. Motor vehicles sales were up. Residential and commercial estate investment was up 14.6 percent and 12.3 percent, respectively.
But, overall, it was a pretty disappointing quarter, financial adviser Jim Baird tells The Wall Street Journal:
Unsurprisingly, consumers remain the primary engine for growth, but the pace of spending growth continues to stall… Government spending was a wash for the quarter, as moderate growth at the state and local levels was offset by federal spending cuts for the fourth consecutive quarter. Business spending, which was already limited, was soft once again, growing by only 4.1 percent. Corporate America remains cautious in extending itself. [Wall Street Journal]
The consensus seems to be that the U.S. economy is limping forwards — a bad sign considering it hasn't fully recovered from the Great Recession. The government shutdown probably didn't help things either.
Here's the whole story: GDP data suggests the recovery was just becoming self-sustaining in Q3. So Congress punched it in the face in Q4.
— Justin Wolfers (@JustinWolfers) November 7, 2013
We will have a clearer picture of how the U.S. economy is doing when the Labor Department releases its jobs report on Friday.