GDP Grows 3.9% in Third Quarter
It was the economy’s best performance in six quarters. In the second quarter the economy grew at a pace of 3.8%.
Growth was well-balanced in the period from July to September, with strong contributions from consumers, exports, capital spending, military spending, and inventory building. Housing investments continued to be a major drag on gross domestic product.
The GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low.
Consumer prices rose 1.7%, while core consumer prices, which exclude food and energy prices, rose 1.8%, just within the Federal Reserve's target zone.
Over the past four quarters, the economy has grown 2.6%. GDP had slowed to 0.6% in the first quarter of the year.
Consumer spending, which is the largest component of GDP, rose at a 3% pace. Spending on durable goods rose 4.4%, spending on nondurable goods rose 2.7% and spending on services increased 2.9%. Consumer spending contributed 2.1 percentage points to the 3.9% growth rate.
Business investments increased 7.9%, including a 12.3% rise in structures and a 5.9% gain in equipment and software investments. Capital spending on equipment and software increased at the fastest pace since early 2006, while investments in structures slowed from a 26-year high in the second quarter. Business investments contributed 0.8 percentage points to growth.
Business added $15.7 billion to their inventories, contributing 0.4 percentage points to growth. Inventory growth in the third quarter could rob growth from the fourth quarter if businesses have to work down their inventories. Inventories remain extremely lean, however.
Investments in homes fell by 20.1%, the seventh straight decline and nearly matching the 20.4% decline a year ago. Residential investments cut one percentage point from growth.
Exports surged again the third quarter, rising at a 16.2% annual rate, the best in nearly four years. Exports of goods jumped 23%, the most in 11 years. Imports, meanwhile, increased at a 5.2% pace. Net exports contributed 0.9 percentage points to growth.
Government spending increased 3.7%, with most of the growth coming from the 9.7% rise in defense spending. Government spending contributed 0.7 percentage points to growth, including 0.5 percentage points from the military.
Disposable personal incomes grew 4.4%. Output of motor vehicles contributed 0.3 percentage points to growth. Final sales of computers also added 0.3 percentage points to growth.