NEW YORK – The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated, Commerce Department data showed Wednesday.
Highlights of third-quarter GDP (second estimate)
- Gross domestic product grew at a 3.3 percent annualized rate (est. 3.2 percent), revised from 3 percent; fastest since 3Q 2014
- Consumer spending, biggest part of the economy, grew 2.3 percent (est. 2.5 percent); revised from 2.4 percent; down from 3.3 percent in 2Q
- Business-equipment spending rose at a 10.4 percent pace, a three-year high, revised from 8.6 percent; reflects transportation gear
- Corporate pretax earnings rose 5.4 percent year over year, following a 6.3 percent year over year advance
Key takeaways
The latest results for GDP, the value of all goods and services produced, show the economy withstood major hurricanes to reach a more solid footing as it entered the final stretch of the year, thanks to stronger business spending that’s helping cushion a softer pace of consumption.
Federal Reserve Chair Janet Yellen said Wednesday, just before the GDP report, that the expansion is “increasingly broad based across sectors as well as across much of the global economy.”
While the revised growth rate is in line with President Donald Trump’s goal, economists generally see such a pace as unsustainable and expect growth to slow sometime in 2018. Trump and congressional Republicans are pushing a tax-cut plan with the aim of lifting GDP gains to 3 percent annually, though analysts expect any economic boost to be modest, on balance, if the proposal becomes law.
Consumer spending, which accounts for about 70 percent of the economy, continues to be the main driver of growth, though revisions showed it was slightly weaker than previously estimated on purchases of both durable and nondurable goods.
The biggest improvement came in business investment, which made a 1.2 percentage-point contribution to growth, up from 0.98 point in the initial estimate a month ago. In addition to greater spending on transportation equipment, the data also reflected more software spending. Nonresidential structures were revised to a bigger decline.
While the first look at third-quarter gross domestic income showed a pickup, the prior quarter was revised downward by 0.6 percentage point, reflecting a smaller gain in wages and salaries. The average of GDP and GDI was a 2.9 percent gain. Corporate profits grew, albeit at a slower year-over-year pace than in the prior period.
Price data in the GDP report showed inflation remains behind the Fed’s 2 percent goal. Excluding food and energy, the central bank’s preferred price index tied to personal spending rose at a 1.4 percent annualized rate last quarter, revised from 1.3 percent and following a second-quarter gain of 0.9 percent.
Other details
- Net exports added 0.43 percentage point to growth, revised up from 0.41 point; inventories added 0.8 point, revised up from 0.73 point
- Gross domestic income, adjusted for inflation, rose 2.5 percent after a downwardly revised 2.3 percent gain in the prior three months; second-quarter wages and salaries were revised downward by $26.5 billion
- Nonresidential fixed investment – which includes spending on equipment, structures and intellectual property – increased 4.7 percent, revised from 3.9 percent
- Residential investment fell at a 5.1 percent rate, smaller than previous estimate of 6 percent drop
- Stripping out trade and inventories – the two most volatile components of the GDP calculation – final sales to domestic purchasers climbed 2 percent, revised from 1.8 percent
- Government spending increased at a 0.4 percent rate, revised from 0.1 percent decline; the figures reflected an upward revision to state and local construction spending
- After-tax incomes adjusted for inflation increased at a 0.6 percent annual pace, revised from 0.5 percent; saving rate revised to 3.3 percent from 3.4 percent
- GDP report is the second of three estimates for the quarter; the third is due in December as more data become available.
Shobhana Chandra is a reporter for Bloomberg News.
