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Economy in Brief

U.S. GDP Growth Firms; Exports & Inventories Strengthen
by Tom Moeller  October 28, 2016

Economic growth improved to 2.9% (1.5% y/y) during Q3'16 following a 1.4% Q2 rise. It was the strongest increase in two years. A 2.5% rise had been expected in the Action Economic Forecast Survey.

Improvement in the foreign trade deficit had the largest positive effect on growth. The 0.8 percentage point addition from net exports reflected a 10.0% rise (2.0% y/y) in exports which followed a 1.8% gain. Goods exports rose 14.5% (2.7% y/y) and services exports improved 2.1% (0.7% y/y). Imports increased 2.4% (0.7% y/y), powered by an 8.8% jump (3.2% y/y) in services while goods imports ticked 0.9% higher (0.1% y/y).

Inventories added 0.6 percentage points to economic growth last quarter. That followed five consecutive quarters of subtraction.

Domestic final sales growth decelerated to 1.4% (1.7% y/y) from 2.4%. Growth in personal consumption expenditures fell to 2.1% (2.6% y/y), half the growth in the prior quarter. Durable goods spending advanced 9.5% (5.6% y/y), about as it did in Q2. Motor vehicle spending growth nearly doubled to 16.2% (3.3% y/y. Furniture & appliance spending growth eased to 4.9% (6.3% y/y) and purchases of recreational goods & vehicles fell to 9.0% growth (9.5% y/y). Expenditures on nondurable declined 1.4% (+1.8% y/y) after a 5.7% rise, owing to a 3.5% drop (+0.2% y/y) in gasoline & energy goods purchases. Apparel spending also eased 0.6% (+1.0% y/y), but foods & beverage purchases rose 1.7% (3.0% y/y). Services spending increased 2.1% (2.3% y/y), down from 3.0% in Q2. Housing & utilities spending rose 2.4% (1.4% y/y) after a 4.5% jump, and growth in health care expenditures fell to 2.3% (4.7% y/y) from 7.3%. Restaurant & hotel spending growth picked up slightly to 3.2% (3.0% y/y).

Business fixed investment grew 1.1% (-1.2% y/y) after a similar gain in Q2. These increases followed two quarters of decline. The turnaround reflected 5.4% growth (-3.3% y/y) in structures investment while spending on equipment fell 2.7% (-4.5% y/y), the fourth straight quarter of decline. Transportation equipment investment accounted for the latest drop, off 15.1% (-10.0% y/y), while information processing equipment grew 10.2% (0.7% y/y). Industrial equipment investment also improved 1.1% (4.1% y/y).

Residential investment declined 6.2% (+1.0% y/y), after a 7.8% fall.

Government spending ticked 0.5% higher (0.3% y/y) after a 1.7% drop. National defense spending increased 2.1% (0.0% y/y) following two quarters of decline. Federal nondefense spending grew 3.0% (2.6% y/y) after a 3.8% rise. State & local investment eased 0.7% (-0.1% y/y), the third decline in the last four quarters.

The GDP price index increased 1.5% (1.3% y/y) following a 2.3% rise. A 1.4% advance was expected. The PCE price index rose 1.4% (1.0% y/y) while excluding food & energy, it increased 1.7% (1.7% y/y). The business fixed investment price index grew 0.3% (0.4% y/y) after a 1.2% rise. The residential investment price index increased 5.8% (3.9% y/y), about as it did in Q2.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually 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

Chained 2009 $ (%, AR) Q3'16 Q2'16 Q1'16 Q3'16 Y/Y 2015 2014 2013
Gross Domestic Product 2.9 1.4 0.8 1.5 2.6 2.4 1.7
  Inventory Effect 0.6 -1.2 -0.4 -0.3 0.2 0.0 0.2
Final Sales 2.3 2.6 1.3 1.8 2.4 2.5 1.5
  Foreign Trade Effect 0.8 0.2 0.0 0.1 -0.7 -0.1 0.3
Domestic Final Sales 1.4 2.4 1.2 1.7 3.1 2.6 1.2
Demand Components
Personal Consumption Expenditures 2.1 4.3 1.6 2.6 3.2 2.9 1.5
Business Fixed Investment 1.1 1.0 -3.4 -1.2 2.1 6.0 3.5
Residential Investment -6.2 -7.8 7.8 1.0 11.7 3.5 11.9
Government Spending 0.5 -1.7 1.6 0.3 1.8 -0.9 -2.9
Chain-Type Price Index
GDP      1.5 2.3 0.5 1.3 1.1 1.8 1.6
Personal Consumption Expenditures 1.4 2.0 0.3 1.0 0.3 1.5 1.3
 Less Food/Energy 1.7 1.8 2.1 1.7 1.4 1.6 1.5
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