The Bureau of Economic Analysis reported a stronger-than-expected growth rate for the U.S. economy in the third quarter, with real GDP up 2.8 percent. This was higher than the consensus estimate for real GDP growth of 2.0 percent. As such, it was the third consecutive acceleration in output, with real GDP up 0.1 percent, 1.1 percent, and 2.5 percent in the past three quarters (fourth quarter 2012 to second quarter 2013), respectively. With that said, this data pre-dates the government shutdown, which is expected to have a negative impact in the fourth quarter data of 0.25 to 0.50 percentage points.
As was noted in the second quarter, consumer and business spending were once again the strongest elements of growth in the third quarter data. The good news was that net exports and government spending also made positive contributions this time around, with the latter stemming from better numbers at the state and local level. Federal government spending subtracted 0.13 percentage points from real GDP, but this was offset by a 0.17 percentage point positive contribution from state and local government outlays.
Americans purchased more items in the third quarter than in the second, with goods spending up an annualized 4.3 percent for the quarter. Total goods spending added 0.99 percentage points to growth, with 0.57 percentage points stemming from durable goods items and another 0.42 percentage points coming from nondurable goods. Among the items that were strengths were food and beverages, furnishings and durable household equipment, motor vehicles, and recreational goods and vehicles. In contrast to goods spending, consumer spending on services was almost flat for the quarter, up 0.1 percent at the annual rate.
Increased inventory replenishment and spending on both residential and nonresidential structures helped push business investment higher. In fact, gross private domestic investment increased at an annualized 9.5 percent in the third quarter, extending the 4.7 percent and 9.2 percent gains experienced in the first and second quarters, respectively. Business investment added 1.45 percentage points to growth, making it the largest contributor to real GDP in the third quarter. Given that 0.83 percentage points of that was from inventories, you might expect the fourth quarter figure to be slightly less robust as inventory spending might not need to be as strong.
On the trade front, exports were a net positive for the first time since the fourth quarter of 2012, adding 0.31 percentage points to real GDP. This was the result of goods export growth of 6.4 percent at the annual rate, outpacing goods import growth of 1.8 percent. Given the slow growth of manufactured goods exports so far this year, news that goods exports have begun to accelerate again is definitely an encouraging sign.
Overall, this data suggests that the U.S. economy continues to grow at a modest pace, led by consumer and business spending. It also indicates that growth could pick up even more with healthier trade figures, much as we saw in the third quarter. While fourth quarter growth will be somewhat depressed by the government shutdown and continuing fiscal uncertainties, real GDP should increase just above 2 percent for 2013 as a whole.
Next year, the economy is poised for better economic growth, approaching 3 percent for the first time since 2005, assuming government stops creating economic risks and the global growth continues to improve. In general, manufacturers are cautiously optimistic about next year, but they also recognize that there continue to be downward risks to growth in the economy. As such, policymakers should look for ways to expand opportunities for manufacturers, providing them with the keys to expand and flourish and helping to alleviate barriers (e.g., tax reform, reducing regulatory burdens, expanding trade, etc.).
Chad Moutray is the chief economist, National Association of Manufacturers.
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