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By Jason Stipp and Robert Johnson, CFA | 11-28-2012 12:00 PM

Why 3Q GDP Will Look Better the Second Time Around

The second read of third-quarter GDP is expected to jump due to stronger export, construction, and retail data released since the original 2.0% reading.

Jason Stipp: I'm Jason Stipp for Morningstar.

We get the second read of third-quarter GDP on Thursday. The first read showed the economy grew by 2% in the third quarter; the second read is expected to show that the economy grew by 2.9%--a big jump.

Here to talk about what's behind that is Morningstar's director of economic analysis Bob Johnson.

Bob, thanks for being here.

Bob Johnson: Great to be here.

Stipp: So, before we get into the jump from the first to second read on third-quarter GDP, let's talk about why you care about this report. It's obviously given a lot of attention in the headlines. What do you look for in this report? Why is it important to you?

Johnson: I like the GDP report, because it does a few things for us. First of all, it's comprehensive. It puts all the little pieces together. We get retail sales over here, but if it turns out that all those retail sales are from stuff we're importing from a foreign country, well then it really doesn't do us here in the United States any good. So, this kind of puts those pieces together better than any other report.

Secondly, it's adjusted for inflation. So many of the reports we get, especially the retail sales report, is not adjusted for inflation. So we can't tell if people are actually buying more stuff or if they are just paying more for the same stuff that they've always been buying, so that makes it also a very relevant report.

Finally, it generally correlates with employment and how much people want to spend on capital goods, and it's the input to a ton of internal economic forecasting, things at businesses, so it's a widely used report. People will say, well the economy is growing at 2%, I should always will grow a little bit faster, so I should grew at 2.5%, or I should grow just a little bit under it. So, it kind of gives everybody a calibration methodology of where are we, how should I set by budgets? So, that's why this report is generally viewed as very positive.

Stipp: It's a widely used, very important report, but it also has some shortcomings and some problems. What are some of the things where it falls short of the benchmark for you?

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