NEWS ALERT: Initial Estimate of Real GDP for 3Q and Interest Rates

Abdur Chowdhury, Ph.D. Research Consulting Economist
October 28, 2016

U.S. real GDP grew by 2.9% (annualized) in the third quarter of 2016. Consumer spending disappointed, rising 2.1%. All major components of spending slowed relative to the previous quarter. Non-residential business investment grew 1.0% while residential investment fell 6.2%, pulling back for the second quarter in a row. Net-exports added a considerable 0.8 percentage points to economic growth, the biggest contribution in almost three years. Inventory investment was another big contributor, adding 0.6 pp, after a substantial drawdown in the second quarter.

Following three quarters of about 1.0% economic growth, we can breathe a sigh of relief that the U.S. economy is not destined for perpetual sub-two percent growth. The one weakness of the report was the slowdown in consumer spending, but the fact that it followed 4.3% growth in the second quarter makes it easier to digest.

After two years of declining oil investment, the drag from this sector may finally be over. The strong, positive contribution from net exports, on the other hand, is not likely to continue as we expect US dollar to continue to push higher over the next year.

The economic growth of 2.9% should raise confidence among FOMC members that the labor market will continue to make progress and inflation will move gradually toward target, providing all the evidence they need to raise interest rates later this year.

NEWS ALERT: Initial Estimate of Real GDP for 3Q and Interest Rates

Source: Bureau of Economic Analysis