Each month, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, releases an estimate of the level and growth of U.S. gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States.
This lesson focuses on the BEA's second estimate of real GDP growth released on the November 29, 2012, for the third quarter of 2012 (July-September.) Understanding the level and rate of growth of the economy's output (GDP) helps to better understand growth, employment trends, the health of the business sector, and consumer well-being.
- Determine the current and historical growth of U.S. real gross domestic product.
- Identify the components of the measurement of the nation's gross domestic product.
- Assess the relationship of real GDP data, the indexes of economic indicators, and business cycles.
- Speculate about the nature and impact of current economic conditions and implications for the future.
The U.S. economy grew at a slightly faster rate in the third quarter (Q3) of 2012 than had been previously estimated in October, and at a significantly faster rate than the previous quarter. Is this a sign of a more substantial economic recovery? Is this good news? Take a look at the BEA's second estimate of the performance of the U.S. economy in Q3 2012 and decide for yourself.
Note: Unless otherwise cited, all quoted materials in this lesson are directly from the November 29, 2012, Bureau of Economic Analysis news release of "National Income and Product Accounts - Gross Domestic Product, 3rd quarter 2012 (second estimate)" URL:
Gross Domestic Product: Third Quarter 2012 (Second Estimate)
U.S. Bureau of Economic Analysis
Released November 29, 2012
"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.7 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent."
The second estimate for Q3 was 0.7 percentage point higher than the first estimated made in October. The BEA explained, "The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.0 percent (see "Revisions" on page 3 of the news release)."
Remember, the BEA issues three real GDP estimates each quarter, each based on new and more complete data. This is the second estimate for Q3 of 2012. The average revision from the advance estimate to the third estimate (two months later), has been about 0.6 percentage point.
Real GDP growth can also vary greatly from quarter to quarter during a year. In 2011, for instance, the economy grew at just a 0.4 percent rate in Q1 and increased to 1.3 percent in Q2 and 1.8 percent in Q3. The real GDP growth rate grew to 3.0 percent in Q4. The growth rate increase in each successive quarter over the year. The annualized real GDP growth rate in all of 2011 was just 1.7 percent.
Students: Is the Q3 2012 real GDP growth rate good or bad in this context?
Students: Be cautious about interpreting a big increase or decrease of GDP growth in one quarter as a "trend." 2011 is a good example of one quarter's growth being much greater than the other quarters. Was it a trend?
Figure 1, below, shows the U.S. quarterly real GDP growth rates from 1999 through Q3 of 2012. Note the real GDP negative growth in 2008 and the first half of 2009. This is the period that looks like the traditional definition of a recession. The Bureau of Economic Research identified the end of the recession as June, 2009, but did not do so until September 2010.
Students: Can you determine the recession periods during this time span? See the NBER "Business Cycle Dating Committee" announcement for the "official dates of recessions" on their Official Dates of Recessions and Recoveries page.
Real GDP Growth in Q3 2012
Where did the Q3 2012 growth come from? The BEA reported, "The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by negative contributions from nonresidential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased slightly."
Growth in Q3 2012 was faster than growth in Q2. Why? The BEA noted, “The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a deceleration in imports, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by a downturn in nonresidential fixed investment and decelerations in exports and in PCE."
Note: The "increase or decrease" in real GDP from one quarter to the next is the measurement of the size of real GDP. "Acceleration or deceleration" refers to the change in the rate of growth or decline.
Key Industry Groups and Sectors in Q3 2012
The BEA usually specifically mentions automobile and comupter sales. These are critical indicators of growth or decline.
- Motor Vehicle Sales: "Motor vehicle output subtracted 0.24 percentage point from the third-quarter change in real GDP after adding 0.20 percentage point to the second-quarter change." Automobile sales slowed in Q3. Is this a good or bad sign?
Computer Sales: "Final sales of computers added 0.12 percentage point to the third-quarter change in real GDP after subtracting 0.10 percentage point from the second-quarter change." Computer sales increased a little. Good or bad?
The four major component groups icluded in the determination of GDP are: personal consumption expenditures (C), Private Investment (I), net exports (X), and Goverment expenditures (G).
- Personal Consumption Expenditures: "Real personal consumption expenditures increased 1.4 percent in the third quarter, compared with an increase of 1.5 percent in the second. Durable goods increased 8.7 percent, in contrast to a decrease of 0.2 percent. Nondurable goods increased 1.1 percent, compared with an increase of 0.6 percent. Services increased 0.3 percent, compared with an increase of 2.1 percent."
- Nonresidential Fixed Investment: "Real nonresidential fixed investment decreased 2.2 percent, in contrast to an increase of 3.6 percent. Nonresidential structures decreased 1.1 percent, in contrast to an increase of 0.6 percent. Equipment and software decreased 2.7 percent, in contrast to an increase of 4.8 percent. Real residential fixed investment increased 14.2 percent, compared with an increase of 8.5 percent."
- Imports and Exports: "Real exports of goods and services increased 1.1 percent in the third quarter, compared with an increase of 5.3 percent in the second. Real imports of goods and services increased 0.1 percent, compared with an increase of 2.8 percent."
- Government Expenditures: "Real federal government consumption expenditures and gross investment increased 9.5 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second. National defense increased 12.9 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent. Real state and local government consumption expenditures and gross investment decreased 0.4 percent, compared with a decrease of 1.0 percent."
Inventories: "The change in real private inventories added 0.77 percentage point to the third-quarter change in real GDP, after subtracting 0.46 percentage point from the second-quarter change. Private businesses increased inventories $61.3 billion in the third quarter, following increases of $41.4 billion in the second quarter and $56.9 billion in the first."
Students: What might these numbers mean for the future of the U.S. economy? Government expenditures increased in Q3. What does this mean?
Students: Look at the detailed GDP Data by Industries to identify how well the key industries in your city or region are doing.
Students: Why do you think the BEA chooses to single out automobile sales and computer sales data. Why are these two products so important to understanding GDP growth?
What was the U.S. current-dollar GDP at the end of Q3 2012?
"Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 5.5 percent, or $211.8 billion, in the third quarter to a level of $15,797.4 billion. In the second quarter, current-dollar GDP increased 2.8 percent, or $107.3 billion."
Current dollar estimates are expressed in today's prices. Chained dollar (real) estimates are adjusted for inflation using the price index for gross domestic purchases. The BEA press release explains, "The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.4 percent in the third quarter, 0.1 percentage point less than in the advance estimate; this index increased 0.7 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.1 percent in the third quarter, compared with an increase of 1.4 percent in the second."
Students: Make sure you are clear about the difference between the nominal (current) dollar GDP and the chained (real) GDP measurements.
Students: What is the U.S. per capita GDP?. Divide the current dollar GDP by the population.
NOTE: You can find the U.S. Current Dollar and Real GDP figures since 1929 on this BEA table.
U.S. Regional and State Real GDP Data
The BEA releases annual GDP data for eight U.S. regions, the fifty states, and metropolitan areas. The most recent state and regional data was released June 5, 2012. The current regional and state GDP release is through the year 2011.
"Widespread Economic Growth Across States in 2011"
"Real gross domestic product (GDP) increased in 43 states and the District of Columbia in 2011, according to new statistics released today by the U.S. Bureau of Economic Analysis (BEA) that breakdown GDP by state. Durable–goods manufacturing, professional, scientific, and technical services, and information services were the leading contributors to real U.S. economic growth. U.S. real GDP by state grew 1.5 percent in 2011 after a 3.1 percent increase in 2010."
Source: U.S. Bureau of Economic Analysis news release, "Widespread Economic Growth Across States in 2011," June 5, 2012. URL: www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm. Unless otherwise cited, quoted materials in this section of the lesson are from the BEA's June 5, 2012, news release.
Figure 2, below shows the map of the eight U.S. regions, with the percent change in real GDP by state. Note the states with the highest growth rates (dark blue) and the states with the slowest growth rates (gold). Within each region, the state growth rates vary.
GDP and GDP Growth Rates by U.S. Region, 2011
Figure 3, below, lists the gross domestic product of the U.S. regions and their regional real GDP growth rates in 2011. Note the significant differences between the regions, due to their size and population.
P increased in all eight BEA regions in 2011, although growth slowed in most regions. The Far West (2.1 percent) was the only region where growth accelerated. The Southwest region grew the fastest (2.7 percent), led by Texas with a 3.3 percent increase."
Students: You can compare your state or region to other states and regions. What factors may have influenced the pace or growth in your state or region? What industries are growing or declining in your state or region?
What led the regional GDP growth?
"Durable-goods manufacturing was the largest contributor to U.S. real GDP by state
growth in 2011. This industry increased 7.9 percent in 2011, after increasing 17.0 percent
in 2010. It was the leading contributor to real GDP growth in six of the eight BEA regions
and in 26 states. Durable-goods manufacturing contributed 3.94 percentage points to
growth in Oregon and 1.17 percentage points to growth in Michigan."
State Per Capita GDP
"Per capita real GDP by state in 2011. Per capita real GDP ranged from a high of
$63,159 in Delaware to a low of $28,293 in Mississippi. Per capita real GDP for the U.S.
was $42,070 (2011)."
See the BEA chart for state data. Select your state. URL: /www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1&isuri=1&acrdn=1
U.S. real gross domestic product increased at an annual rate of 2.7 percent in the third quarter of 2012. Real GDP had increased by 1.3 percent in the second quarter. Despite this growth, the U.S. unemployment rate remains historically high at just less than 8 percent. Is this a sign of real recovery?
As evidenced by the rates of GDP growth in the various states (figure 3), the pace of economic recovery varies greatly from one area to another, but all of the U.S. regions grew in 2011. The Southwest and Far West led the U.S. in regional GDP growth.
Keep an eye on the December (final) estimate of real GDP growth for Q3 2012 for a more complete picture of U.S. economic growth and recovery.
Students: What do you think will happen to real GDP growth in the last quarter of 2012?