Third Quarter GDP Accelerates
Real gross domestic product increased at an annual rate of 2.9 percent in the third quarter, the fastest growth rate in two years, the Bureau of Economic Analysis reported Friday in its first (advance) estimate.
In the second quarter, real GDP increased by 1.4 percent.
The advance estimate is based on preliminary source data subject to further revision in the second estimate (November) and third (final) estimate (December).
BEA attributed the increase in real GDP in the third quarter on positive contributions from personal consumption expenditures, exports, private inventory investment, federal government spending and nonresidential fixed investment, partly offset by negative contributions from residential fixed investment and state and local government spending. Imports, a subtraction in the calculation of GDP, increased.
The report said acceleration in real GDP growth in the third quarter reflected an upturn in private inventory investment, an acceleration in exports, a smaller decrease in state and local government spending and an upturn in federal government spending, partly offset by a smaller increase in PCE and a larger increase in imports.
John Silvia, chief economist with Wells Fargo Securities, Charlotte, N.C., said robust consumer spending (2.1 percent) drove the third quarter increase. “More importantly, there were more broad-based supports to growth than we have seen over the past few quarters,” he said, noting that, real final sales to private domestic purchasers fell to 1.6 percent from 3.2 percent in the second quarter, “which suggests some remaining underlying softness after the strong Q2 reading.”
BEA said current-dollar GDP increased 4.4 percent, or $201.1 billion, in the third quarter to $18,651.2 billion. In the second quarter, current dollar GDP increased 3.7 percent, or $168.5 billion.
BEA also reported current-dollar personal income increased $153.6 billion in the third quarter, compared to an increase of $153.1 billion in the second. Disposable personal income increased $125.3 billion, or 3.6 percent, in the third quarter, compared to an increase of $140.6 billion, or 4.1 percent, in the second. Real disposable personal income increased 2.2 percent, compared to an increase of 2.1 percent.
“Lackluster productivity growth indicates that even the modest pickup in employment costs over the past year is adding pressure to margins and, if passed on, would support higher inflation,” said Wells Fargo economist Sarah House.
Silvia expressed skepticism that the economy would continue to grow at the report’s pace. “The surge in export activity is likely unsustainable in light of a sluggish global economic environment while at the same time domestic demand should support stronger import growth,” he said. “Thus, we expect much of the boost from net exports in the third quarter to be unwound in Q4. Some of the drag from trade in Q4 should be offset by somewhat stronger investment in business equipment and a bounce back in residential investment. Continued modest domestic demand combined with the sizable drag from trade that we expect in Q4, we think growth will come in between 2.0 to 2.5 percent.”
Silvia added that signs of inflation slowed in the report, suggesting that the Federal Open Market Committee would not opt for an increase this week in the federal funds rate. “While on the surface the downshift in inflation may raise some doubts about a possible rate hike out of the Fed later this year, the recent stability in oil and other commodity prices along with today’s stronger Q3 GDP reading suggests, in our view, that the Fed is still on track for a December rate hike,” he said.
