The advance estimate of US GDP showed growth of 2.8 percent in Q3 2013, up from 2.5 percent in Q2

1. Economics for your Classroom from
Ed Dolan’s Econ Blog
US GDP Growth Rises
to 2.8 Percent in Q3
Posted November 7, 2013
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2. US GDP Growth Rises to 2.8 Percent Rate in Q3 2013
 The advance estimate from the
Bureau of Economic Analysis
showed US GDP growing at a 2.8
percent annual rate in the third
quarter of 2013.
 If confirmed by later revisions, that
would be the strongest growth since
the first quarter of 2012
November 7, 2013 Ed Dolan’s Econ Blog

3. Phases of the Business Cycle
 According to standard business cycle
terminology, the recession phase of the
business cycle is the downward
movement of GDP from its previous
peak
 The recovery phase is the upward
movement from the trough (low point)
of the recession and continues until
GDP again reaches its previous peak.
 Once GDP moves above its previous
peak, the expansion phase begins.
 The latest data show that the expansion
is continuing. Real GDP is now 5.3
percent above the previous peak
November 7, 2013 Ed Dolan’s Econ Blog

4. Sources of Growth by Sector
 Consumption contributed 1.04 percentage
points to Q3 growth, a little below average
for recent quarters
 Investment contributed 1.45 percentage
points. Fixed investment was a little weaker
than in Q3 than in Q2, while inventories
grew a little faster
 Exports grew moderately and import growth
slowed, so the contribution of net exports
was positive
 The government sector made a positive
contribution to growth, due to more
spending at the state and local level.
Federal spending decreased.
Contribution by sector to the
2.8% GDP growth in Q2 2013
Note: Imports are recorded in the national
accounts with a negative sign, so the -0.30
percentage points shown here represent an
increase in imports
November 7, 2013 Ed Dolan’s Econ Blog

5. Export Growth Continues after a Pause
 Exports played a leading role in GDP
growth during the early part of the
recovery
 Beginning in Q2 2012, the growth of
exports slowed
 The data for Q2 and Q3 show renewed
strength in the export sector, despite
many remaining weaknesses in the
global economy
November 7, 2013 Ed Dolan’s Econ Blog

6. State and Local Spending Shows Signs of Life
 Fiscal drag, or decreasing
government spending, has been a
negative influence on GDP growth for
most of the past 3 years
 In Q3, state and local government
spending showed signs of life for the
first time in several years
 Federal spending continued to
decrease as fiscal policy debates in
Washington remain deadlocked
November 7, 2013 Ed Dolan’s Econ Blog

7. Inflation Indicators Fall Sharply
 In addition to data on GDP and its
components, the national income
accounts include a number of inflation
indicators
 The broadest is the GDP deflator,
which reflects changes in the prices of
all GDP components
 Another is the deflator for personal
consumption expenditure, an
alternative to the more widely
publicized consumer price index.
 Both indicators showed inflation at
1.9% in Q3, below the Fed’s 2% target
and roughly in line with recent trends
November 7, 2013 Ed Dolan’s Econ Blog

8. What will the Fed Do?
 Everyone will look in the GDP data for
clues to whether the Fed will “taper” its
program of QE3 monetary stimulus
 By itself, faster GDP growth would
strengthen the arguments of those
who favor tapering
 However, inflation remains below the
Fed’s 2% target, a factor that favors
continued stimulus
 In the end, the Fed’s decision may
depend on how much damage the
fiscal policy deadlock in Washington
does to GDP growth in Q4 and beyond
November 7, 2013 Ed Dolan’s Econ Blog

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10. For more slideshows, follow Ed Dolan’s Econ Blog
Follow @DolanEcon on Twitter
Click here to learn more about Ed Dolan’s Econ texts
or visit www.bvtpublishing.com