Data released this week by the Bureau of Economic Analysis showed that the U.S. economy grew at a respectable annual rate of 3.6 percent in the third quarter of 2013. That made it the first quarter since early 2012 for which growth was fast enough to make a significant dent in the output gap. The advance estimate released last month had put growth at 2.5 percent.
The upward revision should be interpreted with caution, since, as the
following table shows, it was due almost entirely to an increase in the
estimated growth of inventories. Faster inventory growth is an ambiguous
indicator. In some cases, it can mean that businesses are stocking up
in anticipation of higher future sales, but inventories can also grow
when firms produce more than they had hoped to sell or order raw
materials but fail to use them at the rate they had expected. On a more
positive note, the contribution of fixed investment was also revised
upward, with residential and nonresidential structures leading the way.
release reported downward revisions for the contributions of consumer
spending and net exports. Exports increased slightly less than
previously reported, and imports were slightly stronger. (Note that
imports enter into the national account with a negative sign, so the
revision in the contribution of imports from -0.3 percentage points to
-0.43 percentage points indicates more imports of goods and services
than previously estimated.)
The federal government’s contribution
to GDP was negative, as it has been for most of the past three years.
However, decreasing federal government consumption and investment was
more than offset by growth in state and local government spending.
The new report also gives the first look at corporate profits for the third
quarter. Nominal corporate profits rose at an annual rate of 7.5
percent, and after-tax profits grew at a 10.7 percent annual rate. Both
measures of profits reached record highs, and both grew faster than GDP.
As the next chart shows, corporate profits as a percentage of GDP have
been higher over the past two years than ever before, a fact that no
doubt helps to explain the recent strong performance of stock prices.
Separately, the Bureau of Labor Statistics
reported that the U.S. economy added 203,000 new payroll jobs in
November, easily beating analysts’ expectations. The job gains were
spread widely across the economy, with construction and manufacturing
both showing significant increases along with job growth in
transportation, retailing and health care. Federal government employment
decreased by 7,000, continuing a long decline, but that was more than
offset by gains in government jobs at the state and local levels.
the government shutdown had distorted October’s data, observers paid
special attention to the revisions in the new jobs report. Some had
feared that it would revise last month’s unexpectedly strong
increase of 204,000 payroll jobs sharply downward. As it happened, the
initial October estimate moved downward only slightly, to 200,000. At
the same time, the BLS revised September’s job gains upward to 175,000
from the 163,000 previously reported. The following chart shows both
revised and first-reported payroll job increases.
BLS also reported that the unemployment rate fell to 7.0 percent in
November, a new low for the recovery. The unemployment rate is based on a
survey of households that is separate from the survey of employers that
is used to compile changes in payroll jobs. The household survey showed
that the number of employed workers increased by 818,000 during the
month. The increase in the number of employed workers often differs from
the number of new payroll jobs, in part because the household survey
includes self-employed and farm workers, and in part because of
differences in survey methodology. Adding to the good news, the latest
report showed increases in both the labor force participation rate and
the employment-population ratio.
In addition to the standard
unemployment rate, the BLS also provides a broader measure of labor
market distress known as U-6. The broad measure includes involuntary
part-time workers and discouraged workers, who are not counted as
unemployed because they have given up hope of finding a job. U-6 fell to
13.2 percent in October. As the next chart shows, that figure, too,
marked a new low for the recovery.
have to look hard in this week’s report to find any bad news, although you
can do so if you try. One of the few unfavorable developments in the
employment situation for November was an increase in the percentage of
unemployed workers who were out of a job for more than 26 weeks. As the
next chart shows, although long-term unemployment has been trending
downward, it remains stubbornly high by historical standards even as
other employment indicators have improved. The mean and median duration
of unemployment also increased.
Taken together, faster GDP growth, strong job gains, and lower unemployment show that the United States continues
to be one of the better performers among developed economies. The U.S.
economy is still operating below potential and unemployment remains
elevated by historical standards, but at least things seem to be moving
in the right direction.
Follow this link to view or download a classroom-ready slideshow with details of the latest GDP and employment data. This post is based on material previously published on Economonitor