3Q GDP +2.8% (Second Reading). Consumer Spending Up Mostly From Cash For Clunkers.

The second reading of 3Q2009 GDP came in today at +2.8%, and after four consecutive quarters of economic contraction (a 60yr record for consecutive GDP declines), 3Q shows a rebound in this second of three readings, but not as significant as the first report of 3.5%—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 third and final reading will be December 22.

Consumer spending typically accounts for two-thirds of GDP and while personal consumption expenditures increased +2.9% in 3Q (vs. a drop of -0.9% in 2Q), government consumption expenditures and gross investment increased +8.3% (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 December 23, 2008, -0.5% GDP was the largest quarterly decline since the tail end of the last recession in 2001. Six days after that release, 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 nearly two years. Below are the last seven quarters of final GDP and here is the press release for today’s figures.

Also noteworthy is the language BEA is using for their three GDP updates each quarter: last quarter the BEA revised the language they use to report GDP. 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.

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: +2.8% (second reading)