The Bureau of Economic Analysis revised its real GDP estimate for the third quarter to 4.1 percent growth. This was higher than the original estimate of 2.8 percent or the first revision of 3.6 percent. This was only the second time since the recession that the U.S. economy has grown faster than 4 percent, with the other time being the fourth quarter of 2011 (4.9 percent).
The increase in real GDP in this estimate stemmed largely from upward revisions to nondurable goods and services spending growth. Nonresidential fixed investment was also higher.
In general, the underlying trends that we observed with the last estimate are still true today. Inventory replenishment accounted for 1.67 percentage points of real GDP growth in the third quarter, with nonfarm businesses restocking their shelves as the economy rebounded from softness earlier in the year. This does provide a bit of a challenge for fourth quarter real GDP, with firms not needing to continue restocking shelves.
Outside of inventories, personal consumption and fixed investment added another 2.25 percentage points to the overall real GDP figure. This suggests that consumer and business spending continue to be the main drivers of economic growth. Growth in goods spending rose 4.5 percent at the annual rate in the third quarter, with durable goods outlays outpacing nondurable goods (7.9 percent and 2.9 percent, respectively). Regarding business investment, the largest increases in the quarter were seen for nonresidential structures (up 13.4 percent), residential construction (up 10.3 percent), and intellectual property products (up 5.8 percent).
Two other encouraging findings in this report were goods exports and state and local government spending, both of which made positive contributions to growth. Goods exports rose at a faster rate than goods imports (5.6 percent and 2.4 percent, respectively), with net exports adding 0.14 percentage points to real GDP. This was the first positive contribution to output in three quarters. Meanwhile, state and local government expenditures added another 0.19 percentage points to real GDP, offsetting the 0.11 percentage point drag from reductions in federal spending.
Overall, this number continues to highlight the acceleration in the U.S. economy that we have seen in the second half of 2013. Consumer and business spending helped to boost overall activity – a statement that remains true even if you discount the large increase in inventory replenishment seen in the third quarter.
I expect growth of 2.5 percent for the current (fourth) quarter, which is about what we will achieve for 2013 as a whole. At the same time, I continue to suggest that real GDP will grow around 3.0 percent in 2014, the first year that we would achieve such levels of growth since 2005.
Yet, we must also recognize that some downside risks remain. It will be interesting to see how the economy copes with higher interest rates, particularly on the housing market, even as I expect residential spending to continue to be a bright spot. At the same time, much of my optimism for next year stems from improvements in the global economy and increases in our export sales, something that we have struggled with so far in 2013. Meanwhile, other uncertainties from government could haunt our forecasts, including new regulations and growing challenges with the implementation of the Affordable Care Act.
Policymakers would be wise to reduce uncertainties in the marketplace and consider measures that will keep manufacturing the overall economy on a growth trajectory. To do otherwise, the result would be to dampen demand and increase the cautiousness of the business sector.
Chad Moutray is the chief economist, National Association of Manufacturers.