Preliminary GDP Report a “Nasty October Surprise”

By:  Bob Adelmann
10/29/2012
       
Preliminary GDP Report a “Nasty October Surprise”

The preliminary report from the Bureau of Economic Analysis on Friday about the nation's economic activity during the last quarter was called "a nasty surprise" by an analyst at the American Enterprise Institute.

The preliminary report on the country’s gross domestic product (GDP) issued on Friday by the Bureau of Economic Analysis (BEA) was called a “nasty October surprise” by James Pethokoukis at the American Enterprise Institute. On its face the report noted that the nation’s economic output during the third quarter exceeded economists’ expectations, growing at an annualized rate of 2 percent when it was expected to grow at only 1.7 percent. This was a significant jump from the second quarter which notched a poor 1.3 percent annualized rate of growth.

But Pethokoukis, an expert at parsing such reports, found little about which to rejoice. For instance, the economy has only averaged 2.2 percent annual growth since the Great Recession officially ended in June 2009 and Friday’s report showed essentially no change from that average. In fact, when this year’s first quarter and second quarter growth rates are averaged, the economy grew at 1.65 percent, triggering the distinct probability, according to Pethokoukis, of another slip into recession.

Relying on data from both the Federal Reserve and Citigroup, Pethokoukis offered three reasons why another recession is likely:

First, consumers are slow to realize that the economy is slowing and modify their behavior belatedly. Second, a fragile slow-growth economy is especially susceptible to outside shocks. Finally,

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Chart: "Percent Change From Preceding Period in Real Gross Domestic Product," Personal consumption expenditures (blue); Gross domestic product (gold): Bureau of Economic Analysis, October 26, 2012 

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