Advance Estimates, Third Quarter GDP

The BEA has just released its advance estimate of third quarter GDP:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.7 percent in the third quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.3 percent.

This is a rather weak report. Expectations had been for GDP growth in the range of 4.0%-4.5%, so this is clearly a disappointment. Note as well that the Bush administration’s forecast for growth in real GDP this year was 4.0%; to meet that forecast, we now need to have fourth quarter GDP growth of 4.5%, which seems highly unlikely.

Clearly GDP growth has slowed this year, as the chart below illustrates.

This is concerning for several reasons. First, GDP growth has slowed from an already lackluster pace for an economic recovery. Second, it looks like the best growth of this recovery period is already behind us. Perhaps most worrisome of all is the fact that nearly all of this mediocre GDP growth was due to consumption spending; business spending has still not accelerated at all. If consumers ever decide that they need to save a bit of money, then the sole engine for economic growth in the US will grind to a halt.