US GDP Grows 3.5 Percent in Q3 for Best Six-Month Gain of the Recovery
The Bureau of Economic Analysis reported today that US GDP grew at a 3.5 percent annual rate in the third quarter of 2014. Combined with the strong 4.6 percent showing in Q2, the six-month average of 4.05 percent is the best half-year performance of the recovery. Even including the 2.1 percent annual rate of decrease for Q1, growth over the past full year was better than the average since the recession bottomed out in mid-2009.
Net exports were one of the biggest contributors to growth in the quarter. As the following table shows, net exports, which had been a negative factor in the otherwise strong second quarter, accounted for 1.32 percentage points of growth—more than a third of overall GDP growth for Q3. Export performance remained strong, as it has through most of the recovery, but the big turnaround was in imports. Imports have a negative sign in the national accounts, so the -1.77 percentage points for Q2 reflected an increase in imports for that quarter, while the +.29 percentage points for Q3 indicates a decrease in imports.
Another source of growth in Q3 was a .83 percentage point contribution by the government sector. Most of that was an unusual .69 percentage point growth of national defense consumption expenditure. Defense expenditures tend not to be spread evenly from quarter to quarter. They can account for abrupt jumps in the contribution of the federal government to GDP growth, as they also did in Q4 of 2012 (see the following chart). A recovering state and local government sector again made a positive contribution to GDP growth in Q3, as it has for six of the past seven quarters.
In contrast to the robust performance of net exports and government, the growth of consumption expenditure slowed in Q3. Its contribution of 1.29 percentage points was slightly below its average for the past four years. The contribution to growth from private investment slowed even more dramatically, from 2.87 percentage points in Q2 to just .17 points in Q3. However, most of that was due to a dramatic turn from positive to negative in the growth of inventories. Fixed investment slowed, but still managed to contribute a respectable .74 percentage points to growth, just slightly less than its four-year average.
Today’s report also included the first estimates of inflation for Q3 as based on data from the national income accounts. The broadest measure of inflation, the GDP deflator, takes into account all goods and services that are included in GDP. It came in at 1.3 percent. The deflator for personal consumption expenditures increased at an annual rate of just 1.2 percent in Q3, down from 2.3 percent in Q2. The Fed’s official inflation target of 2 percent is based on the PCE deflator. US inflation has reached that rate just once in the past ten quarters.
On the whole, today’s GDP report was consistent with the favorable employment situation already reported for the third quarter. However, today’s report from the BEA was careful to emphasize that the advance estimate uses preliminary data. The average revision from the advance to the third estimate of GDP growth, without regard to sign, is 0.6 percentage points. With only average revisions, then, the third estimate, to be released in December, could come in anywhere from 2.9 to 4.1 percent.
3 Responses to “US GDP Grows 3.5 Percent in Q3 for Best Six-Month Gain of the Recovery”
One quarter can be an anomaly. Two quarters is a trend. Even if revised growth comes in at the bottom of the band it is the best news in a long time.
The best indication of the trend is the quarter on same quarter of previous year number, which came in at 2.3%. A large part of the above-trend q-on-q growth in the past two quarters is bounce-back from the 1q14 q-on-q contraction. In other words the second and third quarter results have proved definitively that the 1q14 contraction was an anomaly as we are now fully back to the long-term trend. But we also definitely have not broken above the long-term trend.
It's a good bounce rather than a bad bounce, but should treated with equal suspicion.
Mankiw quotes FRED as pointing out that job openings are, for the very first time, back to pre-crises levels (but still not back to 2001 levels.) But job filling behavoirs still seem weird.
I've not found recent numbers for U6, employment/pop or participation/pop ratios – when those improve more or less on trend with GDP I'll take that a sign for positive economy wide momentum.