U.S. Economy Grew at 2.7 Percent Rate in Third Quarter: Here’s What you Need to KnowThe U.S. economy grew at a 2.7 percent annual rate in the third quarter (Q3), better than the 2 percent rate estimated a month ago, the Commerce Department said on Thursday.

“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.7 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter),” the agency’s report reads.

“In the second quarter, real GDP increased 1.3 percent,” the report adds. “The GDP estimate released today is based on more complete source data than were available for the ‘advance’ estimate issued last month.”

But don’t get carried away. Although the agency’s numbers are above what it originally estimated, this doesn’t necessarily mean the U.S. economy is roaring back to life.

Is there more to this story?

“[A] quick glance at the underlying numbers shows the true picture of the economy which contracted far more than most expected, with personal consumption collapsing to 1.4% Q/Q, on hopes of a 1.9% rise, and down from 2.0%,” Zero Hedge notes.

Why is the collapse in personal consumption expenditures (PCE) such a big deal? Because, as many Blaze readers know, PCE represent nearly 70 percent of total GDP.

“Ironically today’s second GDP revision was far worse when analyzed at the component level, than the first Q3 estimate, which while lower overall at 2.0%, at least had personal consumption nearly 50% higher at 1.42%, or well over half of the total contribution,” the Hedge report adds.

Okay, so the big question: If PCE didn’t spur Q3 “growth,” then what did?

Two words: government spending. Yep. government spending. From the report:

Real federal government consumption expenditures and gross investment increased 9.5 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second.

National defense increased 12.9 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a  decrease of 0.4 percent.  Real state and local government consumption expenditures and gross  investment decreased 0.4 percent, compared with a decrease of 1.0 percent.

Keynes would be so proud of us.

The following chart from Zero Hedge illustrates the components of GDP by quarter. Note the orange-colored “Government Consumption Expenditures”:

U.S. Economy Grew at 2.7 Percent Rate in Third Quarter: Here’s What you Need to Know

Government spending “soared to 0.67% of the annualized number, the first positive print in years,” Zero Hedge explains.

Oh, also, Fixed Investment (i.e. fixed, tangible capital goods such as buildings and/or equipment) accounted for only 0.10 percent of Q3 growth — the lowest GDP contribution since Q1 2011.

“Without CapEx there is no corporate revenue growth (and future hiring intentions) period,” Hedge notes.

And just in case you don’t think the first graph accurately depicts the collapse of PCE, here’s a longer-term view [via Zero Hedge]:

U.S. Economy Grew at 2.7 Percent Rate in Third Quarter: Here’s What you Need to KnowPeachy.

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