US GDP growth was revised up to 5 percent for Q3 2014, the fastest rate of the recovery

1. Economics for your Classroom from
Ed Dolan’s Econ Blog
US GDP Grows at 5 Percent in
Q3, Fastest Quarter of the
Recovery
Posted December 24, 2014
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2. December 24, 2014 Ed Dolan’s Econ Blog
US GDP Hits Fastest Pace of Recovery in Q3 2014
 The third estimate from the Bureau of
Economic Analysis released on
December 23 showed that US real
GDP grew at an annual rate of 5
percent in Q3 2014, the highest of the
recovery
 Previously, growth for the quarter had
been estimated at 3.9 percent
 This is the second quarter of strong
growth, following 4.6 percent in Q2

3. Phases of the Business Cycle
 According to standard terminology, the
recession phase of the business cycle
is the downward movement of GDP
from its previous peak
 It is common to refer to the first phase of
growth following the trough (low point)
of the recession as a recovery. During
that phase, idle equipment goes back
on line and workers return to their jobs.
 Official reports call the entire growth
phase of the cycle an expansion, but
many writers apply that term only after
GDP has reached its previous peak.
 Real GDP is now 8.1 percent above its
pre-recession peak
December 24, 2014 Ed Dolan’s Econ Blog

4. Sources of Growth by Sector
 Consumption grew a little faster than in Q2
and well above its average for the past five
years
 Investment growth was a little above the 5-
year average. Fixed investment accounted
for most of that. Inventories were
essentially unchanged
 A burst of defense spending pushed the
federal contribution to GDP growth higher
 Exports, which have been a strong point of
the recovery, grew at roughly their 5-year
average rate. Imports decreased.
Contribution by sector to the
5% GDP growth in Q3 2014
Note: Imports are recorded in the national
accounts with a negative sign, so the +.16
percentage points shown here represent a
decrease in imports
December 24, 2014 Ed Dolan’s Econ Blog

5. US Economy Closes in on Fed’s Targets
 The price index for personal
consumption expenditures grew
1.2 percent from Q3 2013 to Q3
2014. The unemployment rate
average 6.06 percent in Q3,
although it had fallen to 5.8
percent by October
 The Fed defines its policy targets
as 2 percent inflation measured
by the PCE deflator and 5.25 to
5.75 percent unemployment
 Both of those indicators fell within
of plus or minus one percentage
point of the targets as of Q3 2014
December 24, 2014 Ed Dolan’s Econ Blog

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7. Click here to learn more about Ed Dolan’s Econ texts
or visit www.bvtpublishing.com
For more slideshows, follow Ed Dolan’s Econ Blog
Follow @DolanEcon on Twitter