November 1, 2004 -- (Includes analysis from Dr. Joe Webb at the bottom) -- Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.7 percent in the third quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.3 percent. The Bureau emphasized that the third-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency. The third-quarter "preliminary" estimates, based on more comprehensive data, will be released on November 30, 2004. The major contributors to the increase in real GDP in the third quarter were personal consumption expenditures (PCE), equipment and software, exports, government spending, and residential fixed investment. The contributions of these components were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in PCE and a deceleration in imports that were partly offset by a downturn in private inventory investment and a deceleration in residential fixed investment. Comments from Dr. Joe: Those experts again are coloring whether or not news should be perceived as good or bad. Maybe the real data is more important than the expectations. How could the sixth quarter in a row of positive, above average GDP growth be bad news? GDP growth was higher than last quarter as well. With the recent history of GDP being revised multiple times, we must also remember that this 3rd quarter growth of 3.7% will undergo at least two more revisions. Their history of tracking small business growth is so bad that this sector is almost always underestimated in initial GDP estimates, and these estimates are usually raised. This is another report where it's necessary to look below the headline. There's very good news there. Consumer spending was +4.6% compared to only +1.6% last time. Durable goods was +16.8%, and was -0.3% in Q2. Nondurable goods came in at +3.9%, and was +0.1% in Q2. Business investment, at +8.5%, was down from its +13.9% Q2 performance, but included a +14.9% increase in equipment and software. Inflation is slowing: the chain-weighted GDP price index for Q3 was +1.3%, compared to +3.2% for Q2. Perhaps one more Fed increase in rates, and we're done. What's not to love? More details next Friday in my column.