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New GDP release: good news for deposits?

November 29, 2011

| MoneyRates.com Senior Financial Analyst, CFA

The latest read on economic growth in the third quarter still looks like an improvement from last quarter, but could looks be deceiving?

Interest rates are just one area hanging in the balance as the economy teeters between growth and slipping back into recession. Jobs, retirement accounts, and very possibly the next presidential election all depend on the progress of the economy.

After releasing an initial estimate of 2.5 percent growth, the Commerce Department revised that down to 2 percent in its latest release. Here are five points that can help you understand this GDP estimate:

  1. 2 percent may be weaker than it seems. The Bureau of Economic Analysis' latest estimate put GDP growth at 2 percent for the third quarter of 2011. If 2 percent sounds pretty good for one quarter's growth, keep in mind that this is an annual rate, not the actual growth for the quarter.
  2. On the other hand, beating inflation is nothing to sneeze at. That 2 percent is a real, after-inflation number. Rising prices have been raising the inflation hurdle, so it's nice to see the economy can still clear it.
  3. Hold the champagne for the final release. The latest release of GDP is just the second of three estimates of economic growth the BEA puts out. Revisions to these estimates are often big enough to put third quarter GDP growth back in the territory of the second quarter's anemic 1.3 percent.
  4. Protectionists take note. Exports grew at a faster rate than imports for the quarter--a reminder that this would be a lousy time to start raising tariffs.
  5. Businesses are spending on equipment; can hiring be far behind? Non-residential investment in equipment and software increased at a robust 15.6 percent rate in the quarter. This suggests businesses may be getting optimistic enough to consider hiring people to run all that equipment and software. Job growth remains the key to making economic growth sustainable.

Don't expect CD, savings, and money market rates to be quick to follow the GDP into higher territory. But, after a summer of stumbles, the third-quarter GDP number could be a long-awaited step in the right direction.

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