US third quarter GDP: ‘all hat and no cattle’

December 5, 2013

The US economy grew even faster than initially thought in the third quarter, but possibly not in the most helpful way. The Commerce Department released its revised estimates of third quarter growth today, and said the US economy grew at a 3.6% annual rate, up from its first estimate of 2.8%. Here’s Reuters’s chart:

Still, despite the promising headline figures there was concern that the underlying data wasn’t quite as strong. In short, much of the GDP growth came from businesses piling up goods, rather than actually selling them. “Businesses accumulated $116.5 billion worth of inventories, the largest increase since the first quarter of 1998,” Reuters reports. Dan Alpert tweeted that the report was “all hat and no cattle.”

Economist Justin Wolfers put it this way on Twitter:

Quartz’s Matt Phillips has a nice chart of this inventory boom. Here’s the Bureau of Economic Analysis with more:

The increase in real GDP in the third quarter primarily reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Reuters has a another chart on what went into third quarter growth.  (Click here for an interactive chart.)

Jefferey Sparshott has a round-up of economists’ gloomy reaction to the report.

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