US real GDP rose by 2 percent in Q3 2012, up from 1.2 percent in Q2, but exports decreased for the first time since the recession ended

1. Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/
Q3 GDP: Good News in the
Headline but Bad News in
the Details
Posted Oct 28, 2012
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2. Q3 Real GDP Growth at 2.0 Percent
 The advance estimate of US real
GDP growth for Q3 2012 showed
real output increasing at an annual
rate of 2.0%
 That was a small improvement over
the 1.3 percent reported earlier for
Q2 and the same as the growth rate
for Q1 2012
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Expansion Continues
 Q3 2012 was the 13th consecutive quarter
of GDP growth
 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.
 Q3 2012 GDP was well above pre-
recession peak, continuing the expansion
that the economy entered in Q3 2011
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Sources of US GDP Growth in Q3 2012
 Consumption contributed 1.42 percentage
points to Q3 growth Table shows the contribution
of each sector to the 2.0% total
 Investment contributed just .07 percentage GDP growth in Q3 2012
points to growth. Fixed investment was
weak and almost fully offset by a drought-
driven decrease in farm inventories
 Exports fell for the first time since 2009.
Imports, which enter the accounts with the
sign reversed, also decrease. Net exports
subtracted 0.18 percentage points from
GDP growth.
 Government spending reversed a string of
decreases, fueled largely by a jump in
defense spending
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. Exports Decrease in Q3
 Exports decreased in Q3 2012 for
the first time since the end of the
recession
 Falling exports reflected
weakness of all of the main U.S.
trading partners
 The decrease in exports occurred
despite a 3-percent depreciation
of the real effective exchange rate
of the dollar from June to
September
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. Government Contribution to GDP Growth Increases
 Government consumption
expenditures and gross
investment made a positive
contribution to GDP growth for the
first time since Q1 2010
 This measure of government
spending includes all levels of
government but excludes transfer
payments like social security and
unemployment benefits
 Almost all the increase was in
national defense consumption
spending. State and local
government added just 0.01
percentage points to growth
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

7. Growth of NGDP is Back on Track
 Nominal GDP (NGDP) grew at a 5 percent
annual rate in Q3, up from 2.8 percent in
Q2
 An increasing number of economists focus
on NGDP growth as a key policy target
 Long term NGDP growth of 4.5 percent (2
percent inflation and 2.5 percent real
growth) would represent typical
performance for the US economy
 The Fed does not treat NGDP growth as
an official policy target but lagging NGDP
growth has been one of several factors
that have led the Fed to keep monetary
policy on an expansionary path
Posted Oct. 28, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com