When the numbers first flashed across data terminals across financial world, it looked like a solid win: Gross domestic product in the United States rose at a 2.8 percent annual rate in the July through September quarter, which looked as if it had beaten the 2 percent that analysts had forecast.
Until one looked at the details, that is.
The surprise improvement -- up from an average of 1.2 percent growth over the previous three quarters -- was driven by a buildup in business inventories. The rise in goods on store shelves and in warehouses was enough to add 0.83 percentage points to overall GDP growth, which means that if you subtract that impact, the growth rate was right in line with expectations and not anything exceptional.
Inventory increases can happen for either good or bad reasons -- perhaps businesses were feeling optimistic about the future and wanted to stock up, or perhaps demand for their products was below forecasts, so inventories built up unintentionally. But either way, any growth (or contraction) owing to inventory shifts should be non-repeating. Over time, the trend will tend to be flat; firms need however much inventory they need over time, but a rise today does not imply another rise next quarter.
So what do the third-quarter GDP numbers tell us about those more underlying drivers of economic activity?
The biggest component of GDP was a mild disappointment. Personal consumption expenditures rose 1.5 percent, a tick below forecasts and the lowest growth rate since the spring of 2011. Recall that this is for a quarter ended in September; that means that even before the government shutdown and debt default fears in October, the American consumer was not exactly going gangbusters.
Things looked a lot better in the real estate sector, both with residential and commercial investments. They were up 14.6 percent and 12.3 percent at an annual rate, respectively. Business investment in equipment and intellectual property was more or less flat, however, with a 3.7 percent rate of decline in equipment spending and 2.2 percent rate of gain in investment in intellectual property products (think software, movies, or anything else that takes large upfront investment but isn't a physical object).
And in government, contraction by the federal government (down at a 1.7 percent annual rate) was roughly offset by a 1.5 percent rate of gain in state and local expenditures. Essentially this is a reversal from 2010, when the federal government was spending but states and localities were cutting.
Add it all up, and where are we? The economy was muddling along in the late summer months, before the shutdown, at about the rate we thought it was. There is no explosion toward faster growth. There is no collapse, either.
The steadiness would be nice to see if you thought that we were basically in a good economic place and the goal was to maintain the good times. The bad news: that is not the position the United States finds itself in.