United States: Second Q3 GDP release confirms economy's robust momentum
November 29, 2017
The second estimate for Q3 GDP growth suggests the U.S. economy grew at a faster clip than initially reported on stronger non-residential investment and government consumption, and despite weather-related temporary setbacks. GDP growth was revised three-tenths percentage points higher to a seasonally-adjusted annualized rate (SAAR) of 3.3% in Q3, the highest reading since Q3 2014, which was largely in line with analysts’ expectations. The year-on-year expansion was confirmed at 2.3% in Q3, marginally above the 2.2% increase seen in Q2.
The more upbeat Q3 print was the result of upward revisions to non-residential investment and public consumption, as well as a higher contribution to GDP from inventories. Business investment was more resilient than initially reported, with seasonally-adjusted annualized growth revised from a 3.9% increase in the first estimate to a 4.7% rise in the second release (Q2: +6.7% SAAR). The softer deceleration from the previous quarter reflected healthy capital expenditure in business equipment and intellectual property, which more than offset a downgrade to spending on structures. Another area that saw a much-needed improvement was government spending growth, which swung from the 0.1% contraction initially reported to a 0.4% increase in the second estimate. Inventory investment also contributed more than previously thought, up one-tenth to a 0.8% contribution to growth.
Private consumption growth, however, was unexpectedly downgraded to a 2.3% increase from the 2.4% expansion reported a month before (Q2: +3.3% SAAR). The revision was centered on durables, which nonetheless expanded at a solid 8.1% in Q3 (Q2: +7.6% SAAR). Household spending was held back in areas affected by hurricane activity, and our panelists expect consumption to bounce back mildly in Q4 on tentative signs of improving wage growth and reconstruction efforts.
Regarding the external sector of the economy, the second estimate confirmed the sector’s healthy performance in the third quarter. Q3 export growth were revised down one-tenth to 2.2%, which followed the 3.5% expansion recorded in Q2. Imports were also revised down from the 1.5% contraction reported in October to a 1.1% decrease, which contrasted the 1.5% increase recorded in Q2. All in all, the external sector’s net contribution to growth was confirmed at 0.4 percentage points in Q3, which followed the 0.2 percentage-point contribution reported in Q2.
The upgrade to Q3 GDP growth was consistent with high-frequency data released since the advance GDP report in October and confirms the economy’s robust health. The report also showed core PCE—the Fed’s preferred inflation gauge—was slightly firmer than reported a month ago at 1.4% in Q3. Both figures pave the way for the Federal Reserve to hike interest rates a third time this year at its 12-13 December monetary policy meeting.
United States Economic Growth Forecast
The Federal Reserve expects economic growth of 2.1% in 2018 and 2.0% in 2019. FocusEconomics Consensus Forecast panelists expect GDP to expand 2.4% next year, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel expects the economy to expand 2.0%.
Author: David Ampudia, Economist