GDP Deflator vs CPI

GDP Deflator vs CPI, year-over-year percentage changes

While I was not surprised that production disappointed, I half expected even worse numbers than the 1.6% reported. Part of the difference was the implicit GDP deflator, which dropped from 3.3% in Q2 to 1.8% in Q3. Rather than chart the noisier quarterly series, above I compare year-over-year changes in the deflator to the CPI. If 1.8% were low, real growth was below 1.6%, but the data here do not back up my intuition.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, equipment and software, nonresidential structures, and state and local government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the third quarter primarily reflected an acceleration in imports, a downturn in private inventory investment, a larger decrease in residential fixed investment, and decelerations in PCE for services and in state and local government spending that were partly offset by upturns in PCE for durable goods, in equipment and software, and in federal government spending.

Final sales of computers contributed 0.10 percentage point to the third-quarter growth in real GDP after contributing 0.04 percentage point to the second-quarter growth. Motor vehicle output contributed 0.72 percentage point to the third-quarter growth in real GDP after subtracting 0.31 percentage point from the second-quarter growth.

Bureau of Economic Analysis, News Release: Gross Domestic Product, 27. Oct. 2006