GDP Revised Up to 3.1% for Q3 2012

Q3 2012 real GDP shows 3.1% annualized growth, revised from 2.7% in the second estimate. Consumer spending increased more than previously estimated, exports were greater and imports were much less. Q2 GDP was 1.25% in actuality, 1.3% is a rounded figure.



A quarterly GDP of 3.1%, is above treading water economic growth. Consumer spending was revised upward. Government spending alone attributed for 0.75 percentage points of Q3's 3.1% GDP. The change in private inventories alone contributed 0.73 percentage points to Q3 GDP. The drought negatively impacted economic growth as farm inventories reduced GDP by –0.38 percentage points.

As a reminder, GDP is made up of: Y=C+I+G+{\left(X-M\right)} where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.

The below table shows the percentage point spread breakdown from Q2 to Q3 GDP major components. GDP percentage point component contributions are calculated individually.


Comparison of Q3 2012 and Q2 2012 GDP Components


Q3 2012

Q2 2012

GDP +3.10 +1.24 +1.86
C +1.12 +1.06 +0.06
I +0.85 +0.09 +0.76
G +0.75 –0.14 +0.89
X +0.27 +0.72 -0.45
M +0.11 –0.49 +0.60


The below table summarizes the revisions to Q3 GDP components from this revision and the second. These GDP component revisions are from a percentage point contribution to Q3 GDP growth, not against themselves.


Comparison of Q3 2012 GDP Component Revisions


Q3 3rd Estimate

Q3 Previous Estimate

GDP +3.10 +2.66 +0.44
C +1.12 +0.99 -+0.13
I +0.85 +0.86 -0.01
G +0.75 +0.67 +0.08
X +0.27 +0.16 +0.11
M +0.11 –0.02 +0.13


Consumer spending, C in our GDP equation, showed slightly negative to flat growth in comparison to the 2nd quarter. Durable goods consumer spending contributed a 0.66 percentage points to personal consumption expenditures. Motor vehicles & parts alone remained at 0.25 percentage points. In nondurable goods spending, adjusted for prices gasoline personal consumption subtracted –0.08 percentage points from Q3 real GDP. People used less gas, which is interesting for these figures are adjusted for prices. Spending on health care was 0.31 of Q3 GDP. Final consumption expenditures of nonprofit institutions serving households, or NISH was significantly revised down, from 0.20 percentage points to -0.8 of Q3 GDP. NISH is really charity or spending on behalf of households by nonprofits and the largest area of this spending is health care. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon).



Imports and exports, M & X are greatly impacted by real values and adjustments for prices from overseas and they were revised. Import growth in real dollars slowed further, now adding 0.11 percentage points to GDP growth while export growth increased significantly between revisions. Exports still are much less of a contribution to GDP than in Q2. The below graph shows real imports vs. exports in billions. The break down of the GDP percentage change to point contributions gives a clear picture on how much the trade deficit stunts U.S. economic growth.



Government spending, G was revised up to 0.75 percentage points or 24.2% of Q3's GDP growth. This was all federal spending, and of that Federal 0.71 percentage point GDP contribution, 0.64 of it was national defense. State and local governments were revised up to 0.04 percentage points of Q3 GDP. Local and state governments have been hurting and contracting in their expenditures. Below is the percentage quarterly change of government spending, adjusted for prices, annualized.



Investment, I is made up of fixed investment and changes to private inventories. The change in private inventories alone gave a 0.73 percentage point contribution to Q3 GDP, or 24.8% of Q3's growth is due to changes in inventories. Below are the change in real private inventories and the next graph is the change in that value from the previous quarter.




The drought is causing farms to reduce their livestock and crop yields are way down. While nonfarm inventory level changes contributed 1.11 percentage points to GDP, farm inventories reduced GDP by -0.38 percentage points, or 14%.

Fixed investment is residential and nonresidential. Residential fixed investment was 0.31 percentage point contribution to Q3 GDP. One can see the housing bubble collapse in the below graph and also how there is no meteoric recovery for Q3, in spite of all of the housing data hype.



Nonresidential fixed investment was negatively revised again to a –0.19 Q3 GDP percentage point contribution. This shows regular investment is sorely lacking in our economy. Structures, or commercial real estate, contributed nothing. Equipment and software was revised to a –0.19 GDP percentage point contribution. Individually, computers and other peripheral equipment was almost all of it, with a –0.19 percentage point contribution.



Motor Vehicles as a whole now contributed -0.25 percentage points to Q3 GDP. Computer final sales, contributed to GDP by 0.11 percentage points. These two categories are different from personal consumption, or C sub-components, such as auto & parts. These are overall separate indices to show how much they added to GDP overall. Motor vehicles, computers are bought as investment, as fleets, in bulk, by the government, as well as part of consumer spending, government spending and so on.

The price index for gross domestic purchases, was revised down a percentage point to 1.4% for Q3, whereas Q2 was 0.7%. In other words, there was twice as much inflation than last quarter, corresponding to the rise in oil prices for Q3. Core price index, or prices excluding food and energy products, was revised up 0.1 percentage points to 1.2%. Q2's core price index was 1.4%.

Nominal GDP: In current dollars, not adjusted for prices, Q3 GDP, or the U.S. output, is now $15.811 trillion and a 5.9% annualized increase from Q2. The 2nd quarter saw a 2.8% increase. Applying the price indexes, or chained, real 2005 dollars, Q3 2012 GDP was $13,652.5 billion. All figures are annualized.



Gross domestic purchases are what U.S. consumers bought no matter whether it was made in Ohio or China. It's defined as GDP plus imports and minus exports or using our above equation: P=Y-X+M where P = Real gross domestic purchases. Real gross domestic purchases was revised up again, from 2.4% to 2.6%, whereas last quarter was 1.0%. Exports are subtracted off because they are outta here, you can't buy 'em, but imports, as well a know all too well, are available for purchase at your local Walmart. When gross domestic purchases exceed GDP, that's actually bad news, it means America is buying imports instead of goods made domestically.

Below are real final sales of domestic product, or GDP - inventories change. This gives a better feel for real demand in the economy. This is because while private inventories represent economic activity, the stuff is sitting on the shelf, it's not demanded or sold. While real final sales increased, it was revised significantly up for Q3, from 1.9% to 2.4%. In other words, with this revision demand became stronger.



GNP - Gross National Product: Real gross national product, GNP, is the goods and services produced by the labor and property supplied by U.S. residents.

GNP = GDP + (Income receipts from the rest of the world) - (Income payments to the rest of the world)

Nominal GNP was $16.048 trillion for Q3, real GNP was $13.854 trillion. Real GNP was revised up, from 2.7% to 2.9% for Q3 whereas in Q2 GNP increased 2.1%. From the report:

Net receipts of income from the rest of the world, which decreased $4.7 billion in the third quarter after increasing $27.4 billion in the second; in the third quarter, receipts decreased $2.0 billion, and payments increased $2.7 billion.



Below are the percentage changes of Q3 2012 GDP components, from Q2. There is a difference between percentage change and percentage point change. Point change adds up to the total GDP percentage change and is reported above. The below is the individual quarterly percentage change, against themselves, of each component which makes up overall GDP. Additionally these changes are seasonally adjusted and reported by the BEA in annualized format.


Q3 2012 Component Percentage Change


Component Percentage Change from Q2
GDP +3.1%
C +1.6%
I +6.6%
G +3.9%
X +1.9%
M -0.6%


The BEA's comparisons in percentage change breakdown of 2nd quarter GDP components are below. Changes to private inventories is a component of I.

C: Real personal consumption expenditures increased 1.6 percent in the third quarter, compared with an increase of 1.5 percent in the second. Durable goods increased 8.9 percent, in contrast to a decrease of 0.2 percent. Nondurable goods increased 1.2 percent, compared with an increase of 0.6 percent. Services increased 0.6 percent, compared with an increase of 2.1 percent.

I: Real nonresidential fixed investment decreased 1.8 percent in the third quarter, in contrast to an increase of 3.6 percent. Nonresidential structures was unchanged in the third quarter; in the second quarter, structures increased 0.6 percent. Equipment and software decreased 2.6 percent in the third quarter, in contrast to an increase of 4.8 percent in the second. Real residential fixed investment increased 13.5 percent, compared with an increase of 8.5 percent.

X & M: Real exports of goods and services increased 1.9 percent in the third quarter, compared with an increase of 5.3 percent in the second. Real imports of goods and services decreased 0.6 percent, in contrast to an increase of 2.8 percent.

G: Real federal government consumption expenditures and gross investment increased 9.5 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second. National defense increased 12.9 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent. Real state and local government consumption expenditures and gross investment increased 0.3 percent, in contrast to a decrease of 1.0 percent.

Here is our overview for Q3 GDP 2nd revision as well as the Q3 GDP advance estimate. Other reports on gross domestic product can be found here.

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