Strong Investment Gives GDP a Boost, But Growth Remains Weak

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Strong investment, particularly in non-residential structures and equipment and software, boosted GDP growth in the third quarter, according to the latest Bureau of Economic Analysis' report on the Gross Domestic Product. Non-residential investment grew at a 16.3 percent annual rate, accounting for 1.54 percentage points of the 2.5 percent GDP growth in the quarter. Non-residential structures saw a 13.3 percent growth rate, while equipment and software investment rose at a 17.4 percent annual rate. Consumption growth was weak at 2.4 percent, but considerably better than the 0.7 percent rate reported for the second quarter. Growth for the quarter was depressed by a sharp decline in inventories. Final demand grew at a somewhat more respectable 3.6 percent rate.

The economy is settling into a pattern of sustained weak growth, which is grossly inadequate. Investment growth is likely to remain relatively healthy as equipment and software investment stays strong, while structure investment becomes at least a small positive in the growth data. Housing has bottomed and will likely be a small positive going forward. Consumption growth is likely to be in a 2-3 percent range. Consumers still have not fully adjusted to their loss of housing wealth (at 4.1 percent, the saving rate in the quarter was well below the 8 percent pre-bubble average), so consumption is likely to trail income growth. Given a backdrop of 9 percent unemployment, this growth rate is very disappointing. Unfortunately because many analysts have raised fears of a double-dip recession, some may view this growth rate as being good.

For more, read the latest GDP Byte.

Tags: economy | GDP | housing | recession