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GDP: Jumps on Trade, Trend Still 2-2.5% 

October 28, 2016
Bottom Line: Economic growth accelerated according to the first estimate for 2016 3rd Quarter GDP. The economy grew more than forecast as a sharp increase in inventory investment boosted growth after 5 straight quarters of negative contributions. Inventory investment added 60 basis points while trade added 80bps pushing the quarter's annualized gain to 2.9%, despite consumption growing at 2.1%, a contribution of less than 150bps. The economy has been growing for the past 28 quarters at an average annualized growth rate of 2.2%, suggesting economic growth remains modest with real final sales growing at a 1.8% annualized rate over the last 4 quarters. Final domestic demand is growing at a 2.1% annualized rate over the last 28 quarters.

Gross Domestic Product ROSE by 2.9% in the 3rd Quarter, higher than market expectations for an increase of 2.6%. During the 7.0 years of economic expansion, the economy grew at an average annual rate of 2.2% after declining at a 2.9% rate during the recession. Economic activity is now 1.5% ABOVE its year ago level and 11.4% ABOVE its pre-recession 2007 Q4 cyclical peak.

Inventory Investment ROSE by $22.1 billion, adding 0.61 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 2.3% and is now 1.8% ABOVE its year ago level. Additionally, Imports ROSE by 2.4% and Exports ROSE by 10.0% so Net Exports ROSE by $35.5 billion. This implies that Real Final Domestic Demand ROSE by 1.4% and is now 1.7% ABOVE its year ago level.

Consumer Spending ROSE by 2.1%, contributing 1.47 percentage points to economic growth.

Business Investment ROSE by 1.1%, adding 0.15 percentage points to GDP. Intellectual property products increased by 4.0% while non-residential structures increased by 5.4%.

Residential Investment FELL by 6.2%, subtracting 0.24 percentage points to economic growth.

Finally, Government Purchases ROSE by 0.5%, adding 0.09 percentage points to GDP. This was its 8th positive contribution in the last 12 quarters.

The GDP Price Index ROSE by 1.6%, compared with market expectations of 1.4%. This is also 1.3% ABOVE its year ago level.