The economy grew by just 2.8 per cent in the third quarter of 2009, or 70 basis points less than the original estimate of 3.5 per cent growth. The magnitude of the cut was in line with expectations.
The most closely watched portion of today’s news is likely to be the consumption component. The original estimate was for 3.4% growth in consumer spending, contributing 2.4 points to the GDP. This seemed to indicate that consumer spending had picked up strongly. The revised number is just 2.9%, adding just 2.1 points to the GDP. Still, that’s not a huge pullback, and certainly not out of the range of expectations.
Today’s report also gives signals that consumer prices might not be increasing as rapidly as thought, which may give the Federal Reserve space too keep rates lower for even longer. The government had previously estimated that the price index for personal consumption had increased 2.8% in July through September. Now it says that increase was slightly lower, 2.7%. The core personal consumption measure, which excludes food and energy prices, increased 1.3% in the third quarter. The earlier estimate was 1.4%.
Of course, this is just the first round of revisions to the GDP numbers. The final estimate for third-quarter GDP will be published December 22. And, even then, it’s not really clear that GDP accurately reflects the state of the economy.