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Real GDP rose at an annualized rate of 2.5 percent in the third quarter, keeping the 4-quarter growth rate at 1.6 percent. Third quarter’s growth rate tops gains made in both the second and first quarters, which grew 1.3 percent and 0.4 percent, respectively. The acceleration relative to the previous two quarters primarily reflects a pickup in consumption growth and real BFI growth, and a deceleration in the decline of state and local government spending. These gains were somewhat offset by smaller increases in private inventories.
PCE was the big driver of this quarter’s accelerated growth, increasing its contribution to real economic output from 0.5 percentage points (pp) to 1.7 pp. Durable goods made a big rebound from its 5.3 percent drop in the second quarter, jumping 4.1 percent in the third. Services also gained in the quarter, increasing its growth rate from 1.9 percent to 3.0 percent. Real BFI still came in strong as well, growing 16.3 percent, and contributing 1.5 pp to real growth. The jump was thanks to gains in equipment and software investment growth, which accelerated from 6.2 percent to 17.4 percent. This increase in software investment was somewhat offset but a decline in structures investment to 13.3 percent. A slight slowdown occurred in residential investment growth. Government spending came in flat, as gains in federal spending offset the losses in state and local spending. Federal spending was relatively flat, but there was a slower drop in state and local spending in the third quarter, which declined only 1.3 percent. Net exports continued to add 0.2 pp after increases in both exports (4.0 percent) and imports (1.9 percent). Private inventories slowed to an addition of $5.4 billion, dropping its contribution to real GDP to &minius;1.1 pp. Given the slowdown in inventories accumulation, along with large gains in consumption and fixed investment, final sales of domestic product grew 3.6 percent in the third quarter, adding a full 2.0 percentage points to second quarter’s figure.