The Bureau of Economic Analysis reported that the U.S. economy grew by an annualized 3.0 percent in the third quarter, extending the 3.1 percent gain in the second quarter. This was slightly better than the predicted growth rate of 2.6 percent—a sign that even with the recent hurricanes, the U.S. economy continues to expand at a decent clip. Strength in consumer and business spending, including inventories, and net exports boosted the third-quarter data. For 2017 as a whole, I am predicting real GDP growth of 2.3 percent, with 3.0 percent growth for the current fourth quarter. This is a slight improvement from the 2.1 percent average growth rate since the Great Recession, but I am also estimating 2.6 percent growth for 2018. In addition, I continue to believe there is upward potential in the forecast, especially for next year and beyond, if pro-growth policies are enacted.
Looking at the underlying data, personal consumption expenditures slowed a little from 3.3 percent annual growth in the second quarter to 2.4 percent in the third quarter. However, durable goods spending was a bright spot across the past two reports, up 7.6 percent and 8.3 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 1.62 percentage points to the top-line growth figure of 3.0 percent in the third quarter, including 0.92 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 came from pullbacks related to the recent hurricanes.
Weather also likely played a factor in decelerating nonresidential fixed investment spending, which softened from an annualized 6.7 percent growth rate in the second quarter to 3.9 percent in the third quarter. Spending on structures declined 5.2 percent at the annual rate—the source of much of that easing. In contrast, investments in equipment remained robust, up 8.6 percent, which changed little from the 8.8 percent growth figure in the prior release. One of the larger positives among business spending included inventories, with the restocking of inventories contributing 0.73 percentage points to real GDP in the third quarter—its best reading so far in 2017. Beyond those figures, residential investment continued to be weak, subtracting 0.24 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 0.98 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 1.4 percent in the third quarter, down from 2.2 percent in the second quarter. Goods imports, however, fell 0.5 percent in this release, the first decline since the first quarter of 2016. The export of services rose 4.1 percent in the latest data. Therefore, net exports added 0.41 percentage points to real GDP growth.
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