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Weekly Market Insight
Third Quarter GDP Better Than Expected But Misleading
 October 29, 2012

Third quarter GDP clocked in at 2.0% at an annualized rate according to the “advance” (first of three) estimates from the Bureau of Economic Analysis. This was better than expected and better than the 1.3% second quarter rate, but it was below the 3% level that would indicate healthy growth.

Details of the report were mixed. Personal consumption expenditures, federal government spending (primarily defense) and homebuilding added to GDP while business structures, net exports and inventories subtracted from GDP. Spending on business equipment and software was flat. Taken together, the decline in spending on business structures and flat spending on business equipment and software – one of the sectors that has led the recovery until recently – shows that businesses have pulled back in the face of regulatory and policy uncertainty, the rapidly approaching fiscal cliff and ongoing weakness in the euro zone.

Looking ahead, the boost in government spending is unlikely to persist as post-election policy initiatives turn toward reducing the deficit no matter which party wins. Nor are consumers in a position to lead the recovery as income growth has been very weak and the labor market has been tepid. The next several months could be dicey, but a stronger global economy next year combined with the recovering housing market at home could accelerate growth in the spring and summer. In these crosscurrents, commercial real estate leasing markets will continue their slow but steady recovery while the capital markets will continue to attract investors in search of yield and some inflation protection down the road.

Need more information? Contact:

Robert Bach
National Director, Market Analytics
312.698.6754