The third quarter GDP report is out, with a 3.5% growth rate for real GDP.
Of course, I was more interested in the level of total final sales of domestic product. At $14,448 billion, it has now increased for two consecutive quarters. After the slight increase of .62% for the 2nd quarter, there was a 3.4% increase in the third quarter.
However, the 5% trend growth path for total final sales for the third quarter quarter was $15,587 billion, leaving a 9% shortfall.
Even with a 3% noninflationary growth path (starting last year,) total final sales should have been $15,489 billion. So, it was about 7% below what I consider the appropriate target.
If the Fed targeted total final sales one year in the future, then the target for fourth quarter 2010 remains $16,081 billion. That would be a 11% increase from the third quarter level, and a 13% annual growth rate. (Once returned to that growth path, it would continue to increase at a 3% annual rate, consistent with close to zero inflation.)