The BEA released the official GDP report for Q3 2009. GDP was up an annualized 3.5%. The Bloomberg consensus was 3.0% (range 2.0% to 4.0%). My own prediction (which was technically a prediction of the Bloomberg consensus) was 3.3%. The rule was that anything under 3% would lead to a bloodbath (metaphorical). This is good news by all of these metrics:

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 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

…

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private inventory investment, in exports, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11 percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from the second-quarter change.

Now for the analysis. The first thing I wanted to look at was the contribution from the auto industry spin-up after cash for clunkers. 1.66 percentage points were due to this industry. Even if none of these produced cars are actually sold, the production of cars is a significant source of economic activity in this country. This activity and the activity of the supply chain is even greater than is reflected in the 1.66 percentage points. Incidentally, having the cars actually sold is a rather large burden. See commentary here and here on the latest developments and brand new bailout for GMAC.

I asked what others were interested in. These are the responses.

mattlehrer: What are the contributions from state/local vs federal government spending? In particular, are they moving in opposite directions?

Let us start with the significance behind this question. State and local governments are basically limited by how much they can tax. They can’t deficit spend beyond a certain fudge factor (for California, that fudge factor is bigger than many state GSPs). Also, there’s one state without a balanced budget requirement, but I forgot which state it was, and I’m very lazy. In contrast, the federal government makes a habit of deficit spending, whether it needs to or not. According to Keynesian economics, right now it really needs to. mattleherer brings this up because state spending is generally pro-cyclical (AKA positive feedback loop, AKA destabilizing), whereas the federal government can afford to be counter-cyclical (stabilizing). The stimulus package was an effort to be counter-cyclical.

Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second. National defense increased 8.4 percent, compared with an increase of 14.0 percent. Nondefense increased 6.8 percent, compared with an increase of 6.1 percent. Real state and local government consumption expenditures and gross investment decreased 1.1 percent, in contrast to an increase of 3.9 percent.

They are on opposite sides of the zero divide, but are moving in the same direction.

the405club: Is there anything in the report that will have a significant impact on (un)employment?

Honestly, I should know more about GDP growth and its relationship with employment before answering this. I professed my ignorance with a proposed attempt at answering this question. I deleted the post because it seemed like a lot of work. I will summarize the method and then resort to hand waving.

All figures would come from the GDP report and this BLS report. Take the GDP dollar contribution change, subtract out that industry’s corporate profits change (figured by making the incorrect assumption that corporate profits are distributed evenly by GDP share), and what is left over is everything else. With the average wage and employment in the industry, you can figure out what proportion of spending goes to labor. Assume that remains constant. That will give the relative jobs growth for each industry. This is a fairly simple model (and can be worked out in Excel quite quickly), but it is still too complicated for me in a pre-coffee state.

Instead, I will interpret the data this way: Durable goods was up 22%. It was down 20% in Q408, so it can have large fluctuations. Almost 90% of this was due to the auto industry (1.3 / 1.47 GDP points). With the caveat that the GMAC bailout is a renewed attempt at the same game, this will not contribute to long term employment. The auto bankruptcies were a huge improvement to cash flow, so it also won’t be extremely bad (just bad) for unemployment either.

Imports and Exports both increased. While imports add to GDP (1.49 points) and exports subtract from GDP (2.01 points), increased trade (of goods) increases employment. There’s some offsetting unemployment (primarily from services, but that change was tiny), but these numbers should overall be positive for employment.

Unfortunately, the GDP figures are not good for analyzing trends. Quarterly data is subject to big swings. In three months, the current auto activity will look very different. We’ll have passed an entire holiday season. That’s probably more important for employment than anything in this report.

gilmoure: How much of GDP is profits on trading on Wall St. and how much of it is due to actual economic growth and production?

Financial services and insurance contributed 0.21 GDP points. This is an increase of 6.8 billion dollars (these will all be in 2005 dollars) compared to the GDP change of 112.5 billion dollars. Information processing equipment and software (gilmoure’s industry, sort of) grew by 11.7 billion dollars.

This was a very good report. Most people are still expecting positive GDP growth in Q4. Hopefully that will be enough of a reversal to carry the economy higher as we have to pay back our short term borrowings.