Third Quarter GDP Rises Faster Than Expected
US economic growth was surprisingly resilient in the third quarter, according to this morning’s preliminary estimate from the Bureau of Economic Analysis. Output increased 3.0%, well above the 2.5% consensus forecast via Econoday.com and only slightly below Q2’s solid 3.1% advance.
For all the talk that blowback from recent hurricanes would weigh on economic activity in Q3, there was nary a sign of trouble in the headline number. Excluding the previous quarter, the 3.0% advance in Q3 marks the strongest GDP rise in three years.
As usual, the main driver of growth in absolute terms is consumer spending, which dominates economic activity. Although the rate of increase in personal consumption expenditures decelerated in Q3 to 2.4% from 3.3% in Q2, the rise is strong enough to keep the economy moving forward for the near term. Within the consumer sector, durable goods spending picked up to 8.3% in Q2, the fastest pace this year. The firmer rate offset softer growth in nondurable goods and services.
Private inventories delivered the biggest positive improvement for growth contribution in Q3 among the main GDP categories. This slice of the economy contributed 0.73 percent points in the August-through-September period, up from 0.12 percentage points previously. The biggest drag on GDP in Q3 in terms of contribution to the headline number: residential fixed investment, which subtracted 0.24 percentage points, the second round of quarterly red ink in this corner.
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Overall, today’s report strengthens the view that US economic momentum rolls on and is no immediate danger of stumbling to a stall-speed pace or worse. Recession risk, in short, remains virtually nil for the moment, as Tuesday’s economic risk report advised.
“There are no real headwinds to growth for the first time since the expansion began,” notes Mark Zandi, the chief economist of Moody’s Analytics. “We are at full employment and we are in full swing, let the good times roll.”