3Q GDP +2.2% (Final). Is This End of 2 Year Recession?

The third and ‘final’ reading of 3Q2009 GDP came in today at +2.2%, and after four consecutive quarters of economic contraction (a 60yr record for consecutive GDP declines), this third reading makes positive economic growth official. The reading was a decline from +3.5% first reading and +2.8% second reading—the Bureau of Economic Analysis said “the revision mainly reflected an upward revision to imports, which means that production that was attributed to domestic activity now is attributed to imports.” The last seven quarters of final GDP are at the bottom of this post, and you can also scroll to our Data section to see historical GDP figures, graphs and download data.

They also said the upturn in real 3Q GDP primarily reflected upturns in PCE and exports, and a downturn in federal, state and local government spending. Consumer spending typically accounts for two-thirds of GDP and while personal consumption expenditures increased +2.8% in 3Q (vs. a drop of -0.9% in 2Q), government consumption expenditures and gross investment increased +8% (vs +11.4% in 2Q), which shows that the government is still carrying a lot of weight. BEA reported that the ‘Cash For Clunkers’ program was a large reason for the PCE increase. All figures are ‘real’ which means they’re adjusted for inflation.

As of November 25, 2008, -0.5% GDP was the largest quarterly decline since the tail end of the last recession in 2001. Six days after that release (and about one year back from today), the NBER declared a recession had been in effect since December 2007 and also countered the popular definition of recession as two consecutive quarters of negative GDP growth, saying that they evaluate many factors in addition to GDP. This falls well in line with the beginning of the credit crunch in August 2007 and the multi-layered factors that have led to the recession that’s lasted two years. Recession beginnings and endings are always officially called after the fact, but this is our first official signal of recovery. Here is the press release for today’s figures.

Also noteworthy is the revised language BEA is using as of last quarter for their three GDP updates each quarter. In the past there were three official readings per quarter: Advance, Preliminary, and Final. Then there would be truly final readings that followed as additional settlements were made on things like real estate transactions and other longer lead contributors to GDP. But markets tend to trade mostly on the first three readings because when subsequent readings come out, we’re already into the next quarter. Last quarter (Q2), BEA noted that names of the readings would change from Advance, Preliminary, Final to this new format: Advance, Second, Third. For purposes of this report, we still call it final since traders make decisions on this number.

4Q2007: -0.2% (final)
1Q2008: +0.9% (final)
2Q2008: +2.8% (final)
3Q2008: -0.5% (final)
4Q2008: -6.3 (final)
1Q2009: -6.4% (final)
2Q2009: -0.7% (third reading, formerly known as final)
3Q2009: +2.2% (third reading, formerly known as final)