U.S. GDP Growth in Q3 Is Stronger Than Expected

GDP grew 3.5% last quarter (2.3% y/y) following an unrevised 4.6% rise. The gain exceeded expectations for 3.0% growth in the Action Economics Forecast Survey. Last quarter's strength was due to trade deficit improvement and firm growth in government spending. Growth in the price index moderated.

Improvement in the foreign trade deficit added 1.3 percentage points to overall economic growth last quarter. This followed two quarters of subtraction from growth. It reflected a 7.8% rise (4.6% y/y) in exports and a 1.7% decline (+3.2% y/y) in imports. Countering the addition to growth from trade was a 0.6 percentage point subtraction due to slower inventory accumulation.

Consumer spending growth also slowed to a 1.8% annual rate (2.3% y/y) from 2.5%. The 7.2% gain (7.5% y/y) in spending on durable goods was half its Q2 growth as spending growth on motor vehicles eased to 9.9% (9.9% y/y). Furniture & home furnishings spending slowed to a 3.6% rate (5.3% y/y). Purchases of nondurable goods eased to 1.1% (1.5% y/y) as apparel spending slowed to 0.9% (1.3% y/y). Food & beverage purchases declined 1.1% (-0.2% y/y), down for the third straight quarter, and gasoline purchases were off 2.3% (-0.9% y/y). Services spending growth rose a steady 1.1% (1.8% y/y), the gain held back by a 2.9% decline (-1.4% y/y) in recreation.

Business investment growth eased to a still-firm 5.5% (6.7% y/y). Spending on equipment grew 7.2% (7.7% y/y), led by a 30.2% rise (16.6% y/y) in transportation equipment, offset by an 11.6% decline (-0.3% y/y) in information processing. Investment in intellectual property products gained 4.2% (4.5% y/y). Structures investment improved at a 3.7% rate (7.9% y/y). Slowing was residential investment growth to 1.9% (-1.0% y/y). Government spending purchases grew at a 4.6% rate (0.4% y/y), the quickest growth since Q2'09. Defense spending firmed at a 15.9% rate (-0.1% y/y), nondefense grew 0.5% (-1.5% y/y) and state & local buying rose 1.3% (1.0% y/y).

The GDP price index increased at a 1.3% annual rate (1.6% y/y). The personal consumption index slowed to 1.2% (1.5% y/y) as durable goods prices fell 1.9% (-2.3% y/y). The service price index rose 1.7% (2.2% y/y), the weakest gain in two years. The nonresidential investment price index rose at a steady 1.1% rate (1.3% y/y) but the residential index jumped 6.5% (5.8% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.