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Economy in Brief

US GDP Growth Boosted Again by Improved Trade Deficit
by Tom Moeller October 31, 2007

U.S. real GDP growth last quarter of 3.9% (AR), in the advance report from the Commerce Department, was higher than expectations for 3.2% growth.

The contribution to growth from net export improvement was another 0.9 percentage points after the 1.3 percentage point contribution during 2Q. Exports boomed at a 16.2% annual rate (9.6% y/y) while import growth of 5.2% (2.9% y/y) reflected the slowdown in U.S. final demand growth.

Growth in final sales to domestic purchasers at 2.5% (AR) wasn't bad following 2.1% 2Q growth and 1.7% growth in 1Q, but the likely increase for all of this year around 2.0% will lag last year's advance of 2.7% and 3.3% in 2004.

The shortfall in domestic demand growth was led by a whopping 20.1% AR (-16.4% y/y) decline in residential investment. It was near the top quarterly rate of decrease during this down cycle in the housing sector.

Firm growth in business fixed investment was again a mainstay of overall domestic demand. It rose 7.9% AR (4.8% y/y) rate after an 11.0% surge in 2Q. Spending on structures, in late cycle fashion, led that increase and rose 12.4% AR (12.8% y/y). Spending on equipment & software also was firm at 5.9% (AR), the strongest since 1Q '06, but the y/y gain of 1.4% was reduced by weak growth or q/q declines from 2Q '06 to 1Q '07.

Growth in real personal consumption expenditures also wasn't bad at 3.0% (3.0% y/y) which was double growth during 2Q. Growth in spending on durable goods amounted to 4.4% (4.7% y/y) as 11.8% growth in spending on furniture & appliances offset a 5.4% drop in spending on motor vehicles. Spending on other durable goods boomed at an 11.7% rate. Nondurable goods spending turned in a 2.7% (2.4% y/y) advance and services spending growth was steady at 2.9% (3.0% y/y).

Inventories added just 0.4 percentage points to GDP growth after a 0.2 point contribution during 2Q. That contribution has been negative this year.

The GDP chain price index rose just 0.8% led by declines in both the nonresidential and residential price indexes. Consumer prices rose only 1.7%, held back by the decline in gasoline prices, while less food & energy it rose just 1.8% (1.9% y/y).

Chained 2000$, % AR 3Q ' 07 Advance 2Q '07 Y/Y 2006 2005 2004
GDP 3.9 3.8 2.6 2.9 3.1 3.6
  Inventory Effect 0.4 0.2 -0.4 0.1 -0.2 0.4
Final Sales 3.5 3.6 3.0 2.8 3.3 3.3
Foreign Trade Effect 0.9 1.3 0.9 -0.1 -0.2 -0.7
Domestic Final Demand 2.5 2.1 2.1 2.7 3.3 3.8
Chained GDP Price Index 0.8 2.6 2.3 2.6 1.7 2.1
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