Commerce Department Releases Third Quarter GDP Data

October 30, 2003. The Department of Commerce's (DOC) Bureau of Economic Analysis (BEA) released gross domestic product and related data for the third quarter of 2003. The data shows that investment in computers and peripheral equipment has been growing at an annual rate of 35% for the past two quarters. In addition, it shows that investment in software has been growing at an annual rate of just over 4% for the past two quarters. See, BEA data release.

The economy as a whole grew at an annual rate of 7.2% in the third quarter. This is the largest quarterly increase in 19 years.

The gross domestic product (GDP) is the the output of goods and services produced by labor and property located in the United States. Table 1 below sets out GDP for the third quarter of 2002 through the third quarter of 2003. These quarterly figures are in billions of dollars, at annual rates, and seasonally adjusted. The final row of Table 1 shows the percent change in the GDP, as measured in constant dollars (that is, adjusted for inflation), at an annual rate.

GDP is broken down into four categories: (1) personal consumption expenditures, which was $7,766.5 Billion in the third quarter (in current dollars, seasonally adjusted, at an annual rate), (2) gross private domestic investment, which was $1,656 Billion, (3) net exports of goods and services, which was -$488.6 Billion, and (4) government consumption expenditures and gross investment, which was $2,104.5 Billion.

Within the second category, investment, there is a subcategory named equipment and software. This, in turn, is made up of (1) information processing equipment & software (IPE&S), (2) industrial equipment, (3) transportation equipment, and (4) other. IPE&S, in turn, is made up of (1) computers & peripheral equipment (C&PE), (2) software, and (3) other. Table 2 below sets out data for certain of these categories for the third quarter of 2002 through the third quarter of 2003. These quarterly figures are in billions of dollars, at annual rates, and seasonally adjusted. These figures are also in constant (1996) dollars.

What the just released data reveals is that investment in software grew modestly in the third quarter (4.5% at a seasonally adjusted annual rate), and has grown modestly in the last year. However, investment in computers and peripheral equipment grew at an astounding rate in the third quarter (35.4% at a seasonally adjusted annual rate), and it grew 35.8% in the second quarter (seasonally adjusted annual rate).

Measured in constant (1996) dollars, the overall economy grew from $9629.4 Billion (seasonally adjusted annual rate in the second quarter) to $9797.2 Billion in the third quarter, or 167.8 Billion. Investment in computer & peripheral equipment grew from $354.9 Billion to $390.3 Billion, or $35.4 Billion, when measured in constant (1996) dollars (seasonally adjusted annual rate). Thus, C&PE made up a large proportion of overall growth, when constant dollars are used. However, this is a statistical oddity.

To obtain more realistic growth rates, the BEA uses constant dollars. This excludes price inflation from the calculation of growth. And specifically, the BEA calculates growth rates, and the dollar amounts of growth in each category by using 1996 dollars. So, for example, the GDP in the third quarter in current dollars, at a seasonally adjusted annual rate, was $11,038.4 Billion, while in 1996 dollars it was less -- $9,797.2 Billion.

However, in the case of computers, prices have not climbed. Technology has advanced, and prices have dropped dramatically. So, for the third quarter, investment in computer & peripheral equipment was $88.3 Billion, at a seasonally adjusted annual rate, when measured in current dollars. This was up from $82.4 Billion in the second quarter, for an increase of $5.9 Billion. But, when the BEA expressed these current dollar figures in 1996 dollars, taking into consideration the measured negative inflation of computer prices, the BEA calculated the third quarter investment in computers and peripheral equipment to be $390.3 Billion at a seasonally adjusted annual rate. This was up from $354.9 Billion in the second quarter, for an increase of $35.4 Billion.

This does not alter the conclusion that the percentage growth in investment in computers and peripheral equipment has been very large. It does, however, provide the argument that the estimate for the percentage growth in GDP in the third quarter is a little overstated.

Secretary of Commerce Donald Evans stated in a release that "We're growing the American economy and soon we'll be growing more jobs. Today's strong performance shows the American economy is headed in the right direction thanks to President Bush's Jobs and Growth Agenda. By creating the conditions for greater economic growth, President Bush is setting our country on the right track towards helping all Americans find work. While we are encouraged by these numbers, the President will not rest until there are enough jobs for every American worker."