United States: Q3 GDP growth revised up, records best performance in two years
November 29, 2016
In the third quarter, U.S. GDP increased at a faster rate than initially estimated, underscoring the resilience of domestic demand. According to the Bureau of Economic Analysis’ (BEA) second estimate, GDP increased at a seasonally adjusted annual rate (SAAR) of 3.2%, which was up from BEA’s initial estimate of 2.9%. Q3’s result marked an acceleration from the 1.4% increase in Q2 and the best performance since Q3 2014. It also beat the 3.0% increase the markets had expected.
The upgrade stemmed from firmer domestic demand, although the revision does little to alter the snapshot of growth’s main drivers. Private consumption growth was revised up from 2.1% in the initial estimate to 2.8% in Q3. The figure, nonetheless, represented a slowdown from a 4.3% increase in Q2. Government spending rebounded to a 0.2% increase in Q3 (Q2: -1.7% SAAR), which was revised down from an initial estimate of a 0.5% expansion. Meanwhile, gross fixed investment contracted at a seasonally adjusted annual rate of 0.9% in Q3, which was a faster contraction than the initial 0.6% decrease (Q2: -1.1% SAAR). Inventories, which typically drive large swings between the first estimate and the second, recorded a milder contribution in Q3 (0.5 percentage points), according to revised data (previously reported: 0.6 percentage points).
Regarding foreign trade of goods and services, exports grew an impressive 10.1% in Q3 (Q2: +1.8% SAAR), mainly due to a surge in soybean exports. The figure was only mildly revised up from the initial estimate and came in well above the 1.8% increase observed in Q2. Moreover, growth in imports was 2.1% in Q3—revised downward from the 2.4% initially reported—and represented an acceleration from the 0.2% rise in Q2.
The weakness in the second quarter highlighted what was a disappointing first half of 2016 for the U.S. economy. Nonetheless, many analysts believe that the economy will pick up momentum in the second half of the year, supported by strong growth in private consumption, an improvement in investment and a rebuilding of inventories. Due to the mild revision, the contribution from net exports to overall economic growth in Q3 was 0.9 percentage points, instead of the 0.8 percentage-point contribution initially reported.
Author: Ricardo Aceves, Senior Economist