Economic growth picked up in the third quarter, the Department of Commerce reported Friday, as inflation-adjusted U.S. Gross Domestic Product grew at a 2.9 percent annual rate, up from 1.4 percent in the second quarter.
Friday’s number was slightly better that private-sector forecasters’ expectations for a rebound to around 2.6 percent, and the best rate since the third quarter of 2014.
Growth picked up thanks to greater exports, in part attributable to a one-time jump in sales of soybeans to South Africa, and an upturn in federal government spending.
Details of the report, however, suggested that the third quarter may not have been as strong as the headline 2.9 percent number would indicate. Of that rate, 0.6 percentage points were attributable to businesses adding inventories after shrinking them in recent quarters, a factor that varies from quarter to quarter and doesn’t predict future growth. Consumer spending was only moderate at a 2.1 percent growth rate. And final sales just to the U.S. private sector, setting aside the government and foreign buyers, grew at just 1.6 percent.
Weak business investment, a concern raised by the Federal Reserve in recent months, still has yet to pick up. Overall business outlays were up just modestly, while investment in equipment shrunk. The Fed will meet next month in Washington to set monetary policy, with most analysts expecting them to forgo raising rates until December.
For a second straight quarter, spending on housing dropped significantly, at a 6.2 percent clip, trimming nearly a quarter of a percentage point off of headline growth.
Nevertheless, commerce is picking up enough to put Gross Domestic Product growth for the year on track to reach 2.3 percent, said PNC economists Stuart Hoffman and Gus Faucher, in line with the Fed’s projections from December despite the very weak first half. Friday’s report “solidifies the case for an increase” in the Fed’s target interest rate this December, they wrote.
The agency adjusts the quarterly Gross Domestic Product rates to smooth out predictable variations. Friday’s estimate is just the first of three it will publish for the third quarter, and revisions can change the overall growth rate considerably.
