I saw a lot of celebratory tweets just now when the Bureau of Economic Analysis revised its estimate of third quarter GDP upwards to 3.6 percent growth. And, indeed, that’s a good number and an upside surprise. But the details are actually quite bad:
The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an acceleration in state and local government spending that were partly offset by decelerations in exports, in PCE, and in nonresidential fixed investment.
The key phrase here is “private inventory investment” which is when businesses build up their stock of goods. Inventory investment tends to swing. If firms build up inventories of unsold goods in one quarter, they typically spend down that inventory in the next quarter. The workhorses of exports (selling stuff to foreigners), PCE (selling stuff to Americans), and nonresidential fixed investment (so companies can make the stuff they sell to foreigners and to Americans) all decelerated.
Relatedly, Gross Domestic Income—an alternative procedure for counting up the same concept that GDP measures—rose only 1.4 percent in this report. The GDI approach is generally more accurate, further underscoring there are a lot of dark clouds to this silver lining.