The American economy grew by 3.0% (annualized) in the third quarter according to the BEA’s advance estimated, ahead of consensus forecast for 2.6%.
Consumer spending also came in ahead of expectations, rising by 2.4% (the median consensus estimate was 2.1%). The gain was led by spending on durable goods, which climbed +8.3%. Non-durable goods spending rose 2.1%, while services spending inched up 1.4%. The services category was likely negatively impacted by hurricane activity.
Business investment had another decent quarter, rising by 3.9%, even as non-residential structures fell 5.2%. The gain was led by equipment spending, which rose 8.6%, while spending on intellectual property products rose 4.3%
Residential construction also fell 6.0%. Both residential and non-residential structures categories were impacted by disruptions related to Hurricanes Harvey and Irma.
Net exports added 0.4 percentage points to real GDP growth. Exports rose 2.3% while imports fell 0.8%. Imports may have been delayed by hurricanes and this is one area where there could be modest give back in the quarter ahead.
Inventory investment also made a significant contribution to growth, adding 0.7 percentage points to the headline figure.
Key Implications
Even with two major hurricanes making landfall in the United States, the economy made significant progress in the third quarter. Outside of the areas directly impacted by the hurricanes, there are few signs of weakness in this report.
With rebuilding likely to boost economic growth in the fourth quarter, there is a good chance that yet another quarter of 3% growth is in store. This is well-above the economy’s potential rate (around 2.0%) and is consistent with ongoing declines in the unemployment rate, which, at 4.2% is already below its estimated long-run level.
Score one for the hawks on the Federal Open Market Committee. The FOMC may hold on raising rates at its meeting next week, but with such broad-based economic strength, a hike in December is near certain at this point.
