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Thursday's GDP Report Will Tell Us a Lot About the Economy

Getty Images/Justin Sullivan

At 8:30 am this morning, the Commerce Department will release its first estimate for GDP growth in the third quarter of 2014. It’s one of the most important economic data releases of the year to date and should give us a better understanding of the health of the economy.

That’s needed. GDP data this year has frequently produced more questions than answers. In the first quarter, data showed, the economy contracted at an annual rate of 2.1 percent. That, though, wasn’t an accurate reading of the underlying state of the economy. Turns out, an unusually harsh winter was the main cause of that contraction. Instead of going out to dinner or shopping at the mall, Americans stayed home. Homebuilding also suffered because of the weather. That trend reversed itself in the second quarter as growth surged forward at a 4.6 percent rate. Much of that was “catch-up” growth as Americans spent the money they saved from the first three months of the year. Overall, growth in the first six months of 2014 was just 1.3 percent. For this most recent quarter, economists expect growth of around 3 percent. We’ll see. If nothing else, it will be nice to get a reading that is not distorted by outlier events.

Of course, this report will come with its own caveats. It’s the department’s preliminary estimate and will be revised twice more. If it comes in much higher or lower than expected, don’t celebrate or freak out. More important, there are things that GDP growth does not tell us—like whether unemployed Americans are finding jobs or if those with jobs are finally paying higher wages. We want certainly want stronger growth, but we want that growth to benefit low-income workers too.

For its part, the Federal Reserve seems to believe that growth is strong enough to warrant a tighter monetary policy regime. On Wednesday, the Fed ended its bond-buying program, officially known as quantitative easing (QE). It still holds $4.5 trillion of assets, which, as Justin Wolfers points out in The New York Times, will keep long-term interest rates low and continue stimulating the economy. Interest rates remain at zero as well. Is that enough for workers to receive larger paychecks? No one knows. But one thing is clear: with QE over and Congressional gridlock not ending anytime soon, the central bank should not consider raising interest rates anytime soon.

Danny Vinik

News from Wednesday:

OBAMACARE. Conservatives in Mississippi declared war on the new health care law. And they won. Sarah Varney explains in a heartbreaking, infuriating expose. (Politico and Kaiser Health News)

POVERTY: A new UNICEF report finds that nearly one third of children in the United States live in poverty. (Christopher Ingraham, Washington Post)

EBOLA: Defense Secretary Chuck Hagel approved a 21-day quarantined monitoring period for all troops returning from the Ebola-ravaged areas of West Africa. (David Alexander, Reuters)

Articles worth reading:

Long read of the day: ProPublica and NPR dive deep into how the Red Cross bungled emergency disaster response to Superstorm Sandy. (Justin Elliott and Jesse Eisinger, Propublica; Laura Sullivan, NPR)  

Laugh of the day: Neither Michael Grimm nor his opponent could name the last book they  read. Seriously. Watch the clip. (Abby Ohlheiser, Washington Post)

Trolls going down: A Supreme Court decision a few months ago has caused a big decline in patent trolls. That may not last forever, but it's a good sign. (Joff Wild, Iam Magazine)

Solar, so good: Solar-powered electricity could soon become as cheap or even cheaper than average electricity-bill prices in 47 states. (Tom Randall, The Grid)

Stories we’re watching:

GDP number and midterms


Danny Vinik explains why the U.S. military’s mandatory quarantine for troops returning from Ebola-infected countries is different from the similar policy governors Chris Christie and Andrew Cuomo announced for health care workers last Friday. Jonathan Cohn notices that most Ebola patients in the U.S. are surviving, while those in West Africa aren’t.

Clips compiled by Claire Groden and Naomi Shavin.