GDP Update: Faster Nominal Growth

by: Calafia Beach Pundit

This is a brief post to update one I wrote last month: "Three under-appreciated GDP facts."

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Last month I highlighted the fact that nominal GDP growth in the third quarter was surprisingly strong. Today's GDP revision makes it even stronger: inflation (the GDP deflator) was largely unchanged at 2.7%, but real growth was raised from 2.7% to 3.1%. That amounts to nominal annualized GDP growth of 5.9%, the fastest in over 5 years.

The Fed has been aggressively accommodative in its provision of bank reserves to the system, with the objective to boost GDP. Last quarter it would appear to have achieved some measure of success, but it's still a bit early to say whether it was monetary policy which gave us 3.1% growth, or simply the combination of growth in the workforce (about 1%) and productivity (about 2%), both of which are very much in line with historical norms. It's not hard, however, to attribute 2.7% inflation to easy money.

In any event, 6% nominal GDP growth is rather impressive, considering how weak this recovery has been.