The U.S. economy picked up the pace in the third quarter, growing 2.5 percent in advance estimates released this morning from the Bureau of Economic Analysis. This represents the fastest pace this year, with the economy only growing 0.4 and 1.3 percent, respectively, in the first two quarters of this year.
Healthy increases in personal consumption, fixed investment and net exports accounted for the bulk of the real GDP rise. In fact, consumption alone contributed 1.72 percent of real GDP’s growth in the quarter; however, all but 0.35 percent of that was from services.
Manufactured goods did provide a positive contribution both from the sale of more durable goods (contributing 0.31 percent to real GDP) and increased goods exports (contributing 0.45 percent). Meanwhile, inventory reductions subtracted a percentage point from real GDP as businesses moved to reduce their supplies.
Looking at the percentage changes in various components of the GDP release, durable goods consumption was up 4.1 percent in the third quarter, compared to an increase of 0.2 percent for nondurables. The contributions from trade were positive, with goods exports (up 4.7 percent) outpacing goods imports (up 1.8 percent).
State and local government spending continued to provide a drag on economic growth, with this component down 1.3 percent for the quarter. While federal spending rose 2 percent, the ultimate contribution to real GDP growth from all government sectors was zero.
Overall, the real GDP numbers were in-line with expectations. While much of the focus lately has been on falling business and consumer sentiment, there have been pockets of strength in the domestic economies which give us reason for cautious optimism moving forward. For instance, even as consumers express extreme pessimism in surveys, they are continuing to spend overall. Likewise, the latest durable goods numbers released yesterday, highlighted growth in new orders (excluding transportation in the September figures) which show that the manufacturing sector – particularly for durable goods – is starting to rebound from its summer woes.
For sustained growth in the fourth quarter and into 2012 we would like to see broader-based growth among manufacturers. The contributions from manufacturing to real GDP growth were much stronger in 2010 and in the first quarter than this past quarter, and I would expect to see that scenario return once the economy gets back on a stronger footing. Overall manufacturers remain concerned about regulations and the policies originating in Washington, they are looking for pro-growth policies to help ease uncertainty so they can begin to grow.
Chad Moutray is chief economist, National Association of Manufacturers.