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Real GDP rose at an annualized rate of 2.0 percent in the third quarter according to the advance estimate from the Bureau of Economic Analysis, improving from a second quarter gain of 1.3 percent and coming in roughly on par with expectations. On a year-over-year basis, real GDP is up 2.3 percent. The acceleration in real GDP growth from the second to third quarter was driven largely by an acceleration in consumption growth and residential investment, and better news on government expenditures. These improvements overcame a slowdown in business fixed investment, a downturn in exports, and a sharper decline in private inventory investment. Real consumption rose 2.0 percent in the third quarter, in line with its four-quarter growth rate and about 0.5 percentage points (pp) higher than its second-quarter growth rate. Interestingly, the improvement in consumption was, in large part, driven by a jump up in durables consumption—increasing 8.5 percent in the third quarter after slipping down 0.2 percent in the second quarter.
Gains were seen across all major durables categories (in other words, it wasn't just autos). Nondurables consumption rose 2.4 percent in the third quarter, moderately above its year-over-year growth rate of 1.6 percent. Notably, services consumption actually decelerated in the third quarter, increasing just 0.8 percent compared with a 2.1 percent gain in the second quarter. The four-quarter growth rate in services consumption has continued to soften relative to its post-recession high-water mark of 2.1 percent in 2011:Q1 and is continuing to edge away from its longer-run growth rate.
Importantly, both exports and imports decreased for the first time since early 2009, with real imports edging down 0.2 percent and real export growth falling 1.6 percent. Elsewhere, nonresidential fixed investment decreased 1.3 percent in the third quarter, as structures investment slipped down 4.4 percent and spending on equipment and software was virtually flat. The change in private inventories did subtract 0.1 percentage point from real GDP growth in the third quarter, but that was entirely due to further losses to farm inventories, which subtracted 0.4 pp from output growth compared to −0.2 pp in the second quarter. Interestingly, real government consumption and investment jumped up 3.7 percent in the third quarter, adding 0.7 pp to real GDP growth (its first addition to output growth since 2010:Q2). There was a large spike in national defense spending (up 13.1 percent) and a modest uptick in nondefense spending (2.9 percent) during the quarter. Also, losses to state and local governments look to be slowing, as the sector decreased just 0.1 percent in the third quarter, relative to a 1.0 percent decline on a year-over-year basis.