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September 2014
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October 2014

Growth Continues in Third Quarter

 Real GDP grew 3.5% in the third quarter, according to the advance estimate released by the BEA.


A big piece of the growth came from net exports (exports minus imports).  Exports rose by 7.8% and imports fell by 2.4%.  Since net exports makes up a very small piece of total GDP, this contributed 1.3% to real GDP growth, but this is more than a third of the total growth in the third quarter.

Here is  a complete breakdown in the growth contribution from each of the four major components:


Overall, 3.5% is a solid growth rate, assuming this estimate holds up through revisions over the next three months.  However, it is slower that the growth experienced in the second quarter, which was 4.6 percent.  One big difference between the last two quarters is in investment which contributed just 0.2% to third quarter growth but contributed 2.9% in the second quarter.

Some Prices up, but Still No Inflation Overall

The overall consumer price index increased by 1.7% over the 12 months ending in September.  For September only, prices rose by just 0.1 percent. Interestingly, the same increases are true when food and energy price changes are excluded from the calculation.
But even though overall prices rose by 1.7% over the past year, some categories rose much more and some categories even fell.  The table below summarizes some of the categories where prices changed significantly over the past year, along with some categories that tend to be important to college students.  The third column in the table shows the relative weight assigned to the given category in the calculation of the CPI.  This value indicates the portion of a typical consumer's monthly expenditures allocated to that category.
CPI Table 0914
Notice how:
  • Ground beef prices rose 17.2% in the past year.  No wonder so many are turning into vegetarians.
  • Gasoline prices continue to fall, dropping 3.6% in the past year.  I mentioned this on Twitter last week, citing a Wall Street Journal article.
  • Textbook prices rose 5.1% and college tuition and fees are up 3.4%
  • Women's outerwear prices rose by 11.3% but men's suits and coats prices increased by just 2%


Labor Force Participation Rate Keeps Falling

I've blogged about this before (see here), but the labor force participation rate (LFPR) just keeps falling.  Nobody sees this as positive news - more and more U.S. workers are sitting on the sidelines.  The latest jobs report brought the good news of a falling unemployment rate, but part of this is because workers are leaving the labor force.  As the graph below shows, the overall LFPR in the U.S. is now down to 62.7 percent, which is the lowest it has been since many women entered the labor force in the 1960s and 70s.  

One way to clarify the magnitude of this decline is to focus on the LFPR for men only.  This has steadily fallen from almost 90% in 1948 to just 69.1% currently (see the graph below).

Also, let's not conclude that this is all due to the aging of the baby boomers.  As Michael Strain recently noted in a series of tweets (here is one), the LFPR is declining even among those aged 25-54.  The LFPR for this age group is plotted below.
All of this means that the economy is not as healthy as we would like and that part of the reason why the unemployment rate is dropping is that people continue to leave the labor force.

Unemployment Declines to Lowest Level since 2008

The unemployment rate dropped to 5.9 percent in September, the lowest level since July 2008.  The last time our unemployment rate was below 6 percent, the economy was in the free fall of the Great Recession.   


The drop in unemployment was driven by strong jobs growth, with 248 thousand jobs added to nonfarm payrolls.  To understand just how strong this is, we can compare this to average job growth over the past five years, which was 154 thousand new jobs per month.


In addition to these new September jobs, there were revisions to earlier estimates of nonfarm employment: July was revised up by 31 thousand and August by 38 thousand jobs.

Finally, students may be interested to know that employment in "food services and drinking places" increased by 20,000 in September and 290,000 over the past year.