Two Steps Forward, One Step Back for GDP

The inventory cycle will weaken, but is not completely out of the picture yet. Increases in private inventories have gained strength over the year, but have kept pace with sales, keeping the inventory/sales ratio in balance and well below the level that precipitated the sharp reduction beginning in mid-2008. This signals that the current increases are intentional inventory investment and this contribution to growth isn't quite over. Courtesy of NAHB

Bureau of Economic Analysis released its third estimate for real GDP growth in the third quarter. Real GDP growth was revised upward to 2.6 percent from the second estimate of 2.5 percent. Overall growth was stronger but the composition was weaker than in the prior release.

Personal consumption expenditures contributed 1.7 percentage points to GDP growth instead of the earlier estimate of 2.0, and inventory investment contributed 1.6 percentage points instead of 1.3.

For the recovery to truly gain momentum personal consumption will have to replace rebuilding inventories as the source of strength, so the revisions are one step back. The numbers definitely represent two steps forward as the final third quarter 2.6 percent real GDP growth represents solid improvement over 1.7 percent in the second quarter.

Overall, today's numbers paint a picture of an improving economy with real promise for the fourth quarter and as we move into 2011. This will be a critical prerequisite for improvement in the labor market, stimulating job growth and lowering the unemployment rate. A more robust recovery and declining unemployment rate will provide the boost to confidence that should re-energize and support a more robust recovery in housing.

- Courtesy of NAHB