Revised! Third Quarter GDP Grew at 2.8 %, Not 3.5%

The recession is still over, but the recovery's first step wasn't as strong as we thought. The second estimate of GDP growth in Q3 revised the figure down to 2.8% from 3.5%. GDP tries to measure the value of all goods and services produced, and it turns out that consumer spending, commercial construction and our trade deficit (hurt by rising gas prices) were all worse than we thought. Analysts had predicted the economy to grow by at least 3% earlier this quarter, but these revised figures will likely temper that enthusiasm.

There are two small lessons here.

First the economy is growing, but it isn't accelerating quite like analysts thought, and this should encourage the Obama administration to keep its eyes on short-term fiscal stimuli, especially for job creation, rather than short-term debt reduction. Second, this is an important reminder that GDP figures are human estimates, not divine edicts. They can be inaccurate and when they're really inaccurate, it can have negative consequences. For example, the Federal Reserve needs a plan to shrink the money supply to stave off inflation when we reach sustainable growth, and it's waiting for economic cues like quarterly GDP growth. Over-optimistic GDP estimates could increase pressure on the Fed to start selling assets before the economy is healthy enough to thrive with higher interest rates. To sum up: Patience is needed.

Me, I'm still nervous about this warning from the Financial Times' John Authers that Q3 -- whatever its growth rate -- was an one-time burp of consumerism brought on by government spending programs.