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Technical Note
Gross Domestic Product
Third Quarter of 2012 (Advance Estimate)
October 26, 2012
This technical note provides background information about the source data and
estimating methods used to produce the estimates presented in the GDP news release.
The complete set of estimates for the third quarter is available on BEA's Web site at
www.bea.gov; a brief summary of "highlights" is also posted on the Web site.  In a few
weeks, the estimates will be published in BEA's monthly journal, the Survey of Current
Business, along with a more detailed analysis of the estimates ("GDP and the
Economy").

Real GDP

Real GDP increased 2.0 percent (annual rate) in the third quarter of 2012, following an
increase of 1.3 percent in the second quarter.  The acceleration in real GDP in the
third quarter reflected an upturn in federal government spending, a downturn in
imports, an acceleration in consumer spending, a smaller decrease in inventory
investment, an acceleration in residential fixed investment, and a smaller decrease in
state and local government spending that were partly offset by downturns in exports
and in nonresidential fixed investment.

Source Data for the Advance Estimate

The advance GDP estimate for the third quarter of 2012 is based on source data that are
incomplete and subject to revision.  Three months of source data were available for
consumer spending on goods; shipments of capital equipment; motor vehicle sales and
inventories; durable manufacturing inventories; federal government outlays; and
consumer, producer, and international prices.  Only two months of data were available
for most other key data sources; BEA’s assumptions for the third month are shown in
table A.  Among those assumptions are the following:

*	a decrease in nondurable manufacturing inventories,
*	an increase in non-motor-vehicle merchant wholesale and retail inventories,
*	an increase in exports of goods, excluding gold, and
*	an increase in imports of goods, excluding gold.

Prices

The price index for gross domestic purchases—the prices paid by U.S. residents for
goods and services wherever produced—increased 1.5 percent in the third quarter after
increasing 0.7 percent in the second.  Excluding food and energy prices, the price index
for gross domestic purchases increased 1.3 percent after increasing 1.4 percent.

Disposable Personal Income and Personal Saving

Real disposable personal income increased 0.8 percent in the third quarter, following an
increase of 3.1 percent in the second.  The personal saving rate was 3.7 percent in the
third quarter, compared with 4.0 percent in the second.
Effects of the Midwest Drought

BEA’s GDP estimates reflect the effects of this summer’s extreme hot weather and
drought in the Midwest on farm production. For the most part, these effects are
embedded in the regular source data that are used by BEA. When the source data do
not completely reflect the effects of the drought, BEA attempts to supplement these data,
applying methodologies similar to those used in the past. While the drought could
indirectly affect many components of GDP, such as personal consumption expenditures
and exports, it is only possible to separately identify its effects on a few components,
such as the change in farm inventories.

The farm inventory investment estimates reflect the continuing effects of the drought on
farm production (particularly for corn and soybeans). The estimates for the third quarter
of 2012 are based on farm income statistics from the U.S. Department of Agriculture
released in August and on crop production reports for corn and soybeans released
through October. In current dollars, the estimates indicate that the drought reduced farm
inventory investment by $29 billion in the third quarter after reducing farm inventory
investment by about $12 billion in the second quarter. Adjusting for inflation, the change
in farm inventories subtracted 0.42 percentage point from the third-quarter change in
real GDP after subtracting 0.17 percentage point from the second-quarter change.

Many farmers participate in crop insurance programs; federal government funding of
crop insurance is recorded as a current transfer payment to the farm sector from the
federal government.  Crop insurance benefits do not directly affect either GDP or gross
domestic income, but they do affect personal income, specifically, farm proprietors’
income.  In the third quarter, crop insurance benefits received by farmers offset about
$15 billion of the crop losses related to the drought; in the second quarter, insurance
benefits offset about $6 billion of the losses. Consequently, the drought’s impacts on
farm proprietors’ income in the second and third quarters were smaller than the
corresponding impacts on farm inventory investment.

For additional information about the methodology used to estimate the impacts of the
drought, see the box “Effects of the 2012 Midwest Drought on the NIPA Estimates” in the
October 2012 Survey of Current Business.

Brent R. Moulton
Associate Director for National Economic Accounts
Bureau of Economic Analysis
(202) 606-9606