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This is a pretty good breakdown of the data from the Cleveland Fed. The trends here from fairly mixed.  PCE is rising which is a very positive sign.  Business investment is generally stagnant, residential has declined substantially due to the end of the homebuyers tax credits.  Inventories were a larger contributor than many expected.  Exports and imports continued recent trends.  And government spending has declined.  The two major trends that should persist into 2011 are declining inventories and declining government spending.  If we see continued housing weakness and tepid recovery in PCE there is very little reason to get too excited about H1 2011 GDP data.  It should be below historical trend growth.

“Real GDP rose at an annualized rate of 2.0 percent in the third quarter, according to the advance release by the BEA, which happened to be just one-tenth of a percentage point shy of our estimate. On a year-over-year basis, real GDP is trending at 3.1 percent. The third quarter increase, which is a slight acceleration over the second quarter’s 1.7 percent gain, was primarily due to increases in personal consumption, inventory investment, and business fixed investment. Tempering increases in those areas were a decrease in residential investment and continued double-digit increases in imports (which, in GDP accounting, enter in as a negative). Importantly, real personal consumption rose 2.6 percent in the third quarter (on top of our estimate), compared to a 2.2 percent increase in the second quarter.

All three components of consumption posted third quarter gains, with the biggest change between the second and third quarter coming from services consumption—which increased from a 1.6 percent gain to a 2.4 percent increase (its largest quarterly increase since 2007:Q1), contributing 1.8 percentage points (pp) to the overall increase in output. Inventories continued to bolster headline growth, adding 1.4 pp to third quarter growth, though that is down slightly from its average contribution of 2.1 pp over the past three quarters.

Business fixed investment rose 9.8 percent during the third quarter compared to a 17.2 percent gain in the second, largely as investment in equipment and software only increased 12.0 percent, compared a 24.8 percent jump in the second quarter. Structures investment actually increased 3.8 percent during the quarter, following eight straight quarterly declines. However, the pattern in residential investment reflected the end of the homebuyers tax credit, as the series fell 29.1 percent, more than reversing an incentive-induced 25.6 percent gain in the second quarter. The four-quarter growth rate in residential investment is still down 6.2 percent.

Also, as was the case last quarter, import growth swamped export growth, 17.4 percent versus 5.0 percent, leading to a negative contribution from net exports (−2.0 pp). Final sales of domestic product, a somewhat clearer picture of demand as it subtracts inventory contributions, continued to post subdued growth.

Final sales rose just 0.6 percent during the third quarter, compared to a 0.9 percent gain in the second quarter. While some may argue that the effect of the homebuyer tax credit is partly to blame for the slight deterioration in final sales over the last quarter, its four-quarter growth rate only stands at 1.1 percent.”

Source: Cleveland Fed

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