Real GDP Growth Revised up to 3.3 Percent in the Third Quarter

The Bureau of Economic Analysis said that the U.S. economy grew by an annualized 3.3 percent in the third quarter, up slightly from its earlier estimate of 3.0 percent growth and extending the 3.1 percent gain seen in the second quarter. The revision came from slightly better data on business and state and local government spending than earlier thought.

My current forecast if for 3.5 percent real GDP growth in the fourth quarter, with 2.3 percent growth in the U.S. economy for 2017 as a whole. This is a slight improvement from the 2.1 percent average growth rate seen since the Great Recession, but I am also estimating 2.8 percent growth for 2018. In addition, I continue to believe that there is upward potential in the forecast, especially for next year and beyond, if pro-growth policies are enacted, including comprehensive tax reform.

Looking at the underlying data, personal consumption expenditures slowed a little from 3.3 percent annual growth in the second quarter to 2.3 percent in the third quarter. However, durable goods spending was a bright spot in each of the past two reports, up 7.6 percent and 8.1 percent in the second and third quarters, respectively. This included the best numbers for motor vehicles and parts in one year. Overall, personal spending contributed 1.60 percentage points to the top-line growth figure of 3.3 percent in the third quarter, including 0.89 percent from goods spending. That was off from a contribution of 2.24 percentage points in the second quarter, but a fair share of that easing coming from pullbacks related to recent hurricanes.

Weather was also likely a factor in decelerating nonresidential fixed investment spending, which softened from an annualized 6.7 percent growth rate in the second quarter to 4.7 percent in the third quarter. That was an improvement from the earlier estimate of 3.9 percent growth, however. Spending on structures declined by 6.8 percent at the annual rate—the source of much of the easing in nonresidential investments for the quarter. In contrast, investments in equipment remained robust, up 10.4 percent, extending the 8.8 percent growth figure seen in the prior release.

One of the larger positives among business spending was inventories, with business spending to restock their shelves contributing 0.80 percentage points to real GDP in the third quarter. That was revised up from the prior estimate of 0.73 percent and was the strongest contribution for inventory spending so far this year. Beyond those figures, residential investment continued to be weak, subtracting 0.20 percent from headline growth, on challenges in the housing market. In total, gross private domestic investment—which includes residential and nonresidential investment and private inventory spending—added 1.20 percentage points to the top-line in the third quarter, improving from its 0.64 percent contribution in the second quarter.

Meanwhile, the international economy has also made notable progress year-to-date, with global trade making its best contribution to real GDP growth since the end of 2013. With that said, goods exports grew just 1.6 percent in the third quarter, down from 2.2 percent in the second quarter. Goods imports, though, fell by 0.6 percent in this release, the first decline since the first quarter of 2016. The export of services rose 3.2 percent in the latest data. Therefore, net exports added 0.43 percentage points to real GDP growth.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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