Third Quarter GDP

By November 1, 2007Economy

Business is UpThe Commerce Department reported yesterday that Gross Domestic Product grew by 3.9 percent in the third quarter. This suggests strongly that the economic expansion remains on track despite the meltdown in the housing market.

Solid 3 percent growth in consumer spending provided a good base of economic activity last quarter. The fact that the economy grew at an even faster rate was due to solid growth in business investment and net exports, which more than offset a steep 20.1 percent decline in residential investment.

Business investment increased a strong 7.9 percent while exports surged at an annual rate of 16.2 percent, which is more than three-times faster than the 5.2 percent rise in imports.

Overall, exports added 1.8 percentage points to the GDP in the last quarter, more than offsetting the -1.1 percent subtracted from GDP due to the drop in residential investment.

Manufacturers continue to benefit from a more competitive dollar and strong growth abroad, as evidenced by the fact that goods exports, most of which are manufactured products, grew at an annual rate of 23 percent last quarter. This marks the fastest pace in more than a decade and nearly four-times faster than the 6.2 percent rise in goods imports! As a result, the trade deficit fell to a three and a half year low of 5.1 percent of GDP last quarter.

Housing is only one of many pillars of the U.S. economy, and right now exports are compensating for the weak housing sector. Congress can help the economy withstand future domestic trouble spots by helping U.S. producers sell more goods abroad. There are currently four free trade agreements that lower trade barriers for U.S. manufacturers pending in Congress right now.

A vote on the first of these, the Peru Trade Promotion Agreement, is expected soon. Congress should pass these agreements to help U.S. manufacturers sell more abroad. This will improve America’s manufacturing base and help the U.S. economy overcome domestic economic trouble spots, such as the current downturn in the housing market.

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