US GDP growth for Q3 was revised upward to 4.1 percent, the second best of the recovery. The gap between actual and potential GDP was the narrowest for the recovery.

1. Economics for your Classroom from
Ed Dolan’s Econ Blog
US Records Healthy 4.1
Percent GDP Growth in Q3
Posted December 21, 2013
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2. US GDP Growth Rises to 4.1 Percent Rate in Q3 2013
 The third estimate from the Bureau
of Economic Analysis showed US
GDP growing at a 4.1 percent annual
rate in the third quarter of 2013
 That marked another upward
revision from the 2.8 percent
advance estimate and the 3.6
percent second estimate
 Growth in Q3 2013 was the
strongest since the first quarter of
2012 and well above the average for
the recovery
December 21, 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 5.6
percent above the previous peak
December 21, 2013 Ed Dolan’s Econ Blog

4. Sources of Growth by Sector
 Most of the upward revision came from
stronger consumption, which contributed
1.36 percentage points to Q3 growth, up
from .96 points previously reported
 Investment contributed 2.56 percentage
points. Fixed investment was a bit stronger
and inventory investment weaker than
earlier reported
 Exports grew a bit faster than imports, so
the contribution of net exports was positive
 The government sector made a small
positive contribution to growth, due to more
spending at the state and local level.
Federal spending decreased.
Contribution by sector to the
4.1% GDP growth in Q2 2013
Note: Imports are recorded in the national
accounts with a negative sign, so the -0.39
percentage points shown here represent an
increase in imports
December 21, 2013 Ed Dolan’s Econ Blog

5. Export Growth Resumes 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
December 21, 2013 Ed Dolan’s Econ Blog

6. State and Local Spending Shows Signs of Life
 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 the first convincing
growth for four years
 Federal spending continued to
decrease as fiscal policy debates in
Washington remain deadlocked
December 21, 2013 Ed Dolan’s Econ Blog

7. NGDP Growth Accelerates, Gap Starts to Close
 Nominal GDP growth also
accelerated in Q3, reaching 6.2
percent, its second best rate of the
recovery and the best in two years
 For the first time since the Great
Recession began, the gap between
actual and potential NGDP closed to
less than -2 percent
December 21, 2013 Ed Dolan’s Econ Blog

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