College Economics
GDP REVIEW
Name __________________
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:
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
Component
Q3 2012
Q2 2012
Spread
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
Component
Q3 3rd Estimate
Q3 Previous Estimate
Spread
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.
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:
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.