Third quarter GDP grew at a 3.4% annual rate, up from 2.2% in the second quarter, the Bureau of Economic Analysis said on Oct. 29. The agency’s September report, released the same morning, shows households closing the quarter with no growth in inflation-adjusted spending and a 0.3% drop in real disposable income. BEA credited the quarter’s acceleration mainly to investment and a rebound in government spending, so the headline growth rate and the household data describe different parts of the economy.
What Drove the 3.4% Growth Rate
Investment led the gains, with higher private inventories and equipment spending, topped by computers and peripheral equipment, BEA said. Consumer spending rose on both services and goods, with health care and food services and accommodations leading services and prescription drugs leading goods. BEA said federal nondefense spending rose because crude sales from the Strategic Petroleum Reserve were smaller than in the second quarter.
Exports fell, mainly petroleum products, and imports rose, which subtracts from GDP. Current-dollar GDP rose 5.6%. Private demand held up over the full quarter. Real final sales to private domestic purchasers, BEA’s measure of consumer spending plus private fixed investment, rose 4.9%, against 4.6% in the second quarter.
September Income and Spending
Personal income rose $54.5 billion, or 0.2%, in September, and disposable income rose $52.7 billion, or 0.2%, the September report shows. Spending rose $113.1 billion, or 0.5%. That is a gap of $60.4 billion, a calculation from the two figures, and the personal saving rate landed at 3.8%, with total saving of $911.1 billion.
Prices took the rest. The PCE price index rose 0.5% for the month and 3.6% from a year earlier, and excluding food and energy it rose 0.3% and 3.1%. The two price figures in the week’s reports measure different spans: the GDP report’s 2.1% is an annualized rate for the quarter, and the 3.6% is the change over 12 months. Core inflation at 3.1% sits 1.1 percentage points above the Federal Reserve’s 2% goal, a calculation from the two figures.
Jobless Claims and the Fed Decision
The labor market showed no sign of strain. Initial jobless claims fell 1,000 to 194,000 in the week ended Oct. 24, and continuing claims fell 21,000 to 1,701,000, the Labor Department reported. The Federal Open Market Committee held rates at 3.75% to 4% on Oct. 28 in a 10-2 vote and described activity as expanding at a “strong pace”. Beth Hammack, president of the Federal Reserve Bank of Cleveland, dissented in favor of a quarter-point increase. In a July statement, she said, “Inflation has been too high for too long.” BEA publishes the second estimate of third quarter GDP on Nov. 25.
