GDP Growth Rises To 2% In Q3 As State/Local Austerity Slows

A blog about business and economics.
Oct. 26 2012 9:30 AM

GDP Growth Rises To 2% In Q3 As State/Local Austerity Slows

Today's announced 2 percent growth in real GDP in the third quarter is slightly ahead of expectations and (if it's not revised) will represent an increase from where we were in the second quarter.

There's nothing to analyze but the data we have, but I caution that (as with all economic data) this is subject to revision. To try to avoid drawing overly strong conclusions from one quarter of preliminary data I think what we can say is that growth in the third quarter was generally better than growth in other large advanced economies (eurozone, Japan, UK) and better than earlier in the year, but still slightly below the long-run average with no hint of rapid bounce-back growth that would put large numbers of people back to work.

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The most interesting specific piece of news is that though state and local government purchases shrank in Q3 they shrank only very slightly and by the smallest margin we've seen since 2009. State and local balanced budget requirements have been a longstanding drag on the American economy but with the housing sector seeing an uptick in activity they may be looking less stretched in the future. What's more the rational Republican governor inaugurated in 2011 is going to want to start his administration off with his toughest austerity measures and then ease up in 2013 and 2014 to try to run for re-election in a happier situation.

The other thing to note is that military spending decline 0.2 percent in Q2 and rose 13 percent in Q3. I once asked some Treasury Department officials why the defense purchases numbers bounce around so much given that they're on an annual budget cycle, and they said basically that they don't know. Which is just to say that while that quarter-to-quarter change is striking, it's not particularly unusual and reflects one of the many sources of noise in the data that it would be wise to avoid reading too much into.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.