A Commercial Real Estate Dissection of Third Quarter GDP

A Commercial Real Estate Dissection of Third Quarter GDP

While the formal dating of the recession’s end is a privilege that resides with the NBER, news of the economy’s expansion has trumped a formal announcement -

The Bureau of Economic Analysis (BEA) released the advance report of third quarter gross domestic product (GDP) on Thursday, October 29. The advance report, which is based on incomplete data and which is subject to revision+, shows that the domestic economy grew at a seasonally-adjusted annual rate of 3.5 percent in the third quarter. The economy contracted by 0.7 percent in the second quarter. While the formal dating of the recession’s end is a privilege that resides with the National Bureau of Economic Research (NBER), news of the economy’s expansion has trumped a formal announcement from Cambridge.

The headline result that prompted yesterday’s 2.05 percent rise in the Dow masks a wealth of detail regarding the underlying drivers of growth. As described below, spending on automobiles – fueled by the Car Allowance Rebate System program (more commonly, the “CARS” or “ Cash for Clunkers” program) – was a particularly important contributor to the third quarter’s result. On the other hand, declining investment in non-residential property development was a significant drag.

In spite of robust growth in aggregate output, the advance estimate of GDP should be considered carefully. Automobile sales and improving conditions in the residential market were both important drivers of the result. In both of these areas, however, short-term government interventions have contributed significantly to the positive results. At least in the case of personal consumption expenditures, we can reasonably anticipate a smaller contribution to growth in the fourth quarter.

Drivers of Growth in the Third Quarter

Personal Consumption Expenditures