Today I want to talk about what may be the most important three-letter acronym when it comes to the U.S. economic recovery: GDP, which stands for Gross Domestic Product.
GDP is the broadest measure of a nation’s economic activity—adding up the total value of all goods and services produced in the U.S. This influential status update on the U.S. economy takes into account net exports, government spending, consumption, investment and inventory. Of course, out of these, the most important component is consumption, which accounts for about two-thirds of GDP.
The latest report is the second estimate for third-quarter GDP—which measures the U.S. economy’s progress over the third quarter. Because this is such an important report, the Commerce Department officially revises each quarter’s GDP estimates a total of four times: three during the quarter (advance, preliminary and final), as well as a final time once a year in July when the annual benchmark revisions are announced.
And what had the newswires buzzing today is that the Commerce Department revised its third-quarter GDP estimate higher yesterday. It raised its estimate to 3.9%, up from the 3.5% rate reported last month. This trounced economists’ estimate for 3.3% GDP growth. The strength of economic growth in the quarter was attributed to upward revisions in business and consumer spending, restocking and spending on residential construction. The increases here helped offset downward revisions in export growth and government spending.
The bottom line is that the economic recovery is gaining steam. The third-quarter marks the fourth quarter out of the last five quarters that the U.S. economy has grown more than 3.5%. With the Fed still committed to its zero interest rate policy, we are truly in a "Goldilocks" economy.