Real gross domestic product increased at an annual rate of 2.9% in the third quarter of 2016, up from the anemic 1.4% reported for the prior quarter, according to the “advance” estimate released by the Commerce Department’s Bureau of Economic Analysis. The consensus estimate of economists surveyed by Bloomberg was for a gain of 2.5%. The estimate, the bureau’s first for this year’s third quarter, is subject to future revision.
The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from residential fixed investment, which was down 6.6% from the prior quarter (which was down7.7% from the first quarter) and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The growth was driven by an upturn in private inventory investment, an acceleration in exports, a smaller decrease in state and local government spending, and an upturn in federal government spending. These were partly offset by a smaller increase in personal consumption expenditures and a larger increase in imports, Commerce said.
Lawrence Yun, chief economist for the National Association of Realtors, put out the following statement on the GDP report: “The economy looks solid as GDP grew by 2.9% on an annualized basis in the third quarter. Export growth of 10% was a big help in boosting the economy. More construction of commercial buildings, which rose by 5%, also helped the economy. On the downside, residential investment fell slightly as housing starts and home sales were stalling a bit in the third quarter.
“The Federal Reserve could be tempted to hurry the interest rate hike because of the good GDP number. We should keep in mind however that the average GDP growth rate in the post-recession period over the past six years has been at a subpar performance of only 2% a year, rather than the long-term U.S. historical average of 3%. Moreover, the latest GDP on a year-over-year basis is only 1.5%. Still, the latest GDP growth rate is implying accelerated job gains and thereby boosting income for households. Home sales consequently should rise in the upcoming year.”
