Economic growth stronger than headline GDP figure suggests, ABC says

Economic growth stronger than headline GDP figure suggests, ABC says

GDP expanded 1.5 percent while nonresidential fixed investment expanded by 2.1 percent The Bureau of Economic Analysis estimated that GDP expanded 3.9 percent during the year's second quarter Private final demand expanded by 3.2 percent, suggesting that the economy is healthier than some might suspect

WASHINGTON, D.C. — In a sign of continued recovery for the U.S. economy, both real gross domestic product (GDP) and nonresidential fixed investment expanded during the third quarter, according to an analysis by Associated Builders and Contractors (ABC) of today's release from the Bureau of Economic Analysis. GDP expanded 1.5 percent (seasonally adjusted annual rate) during the third quarter while nonresidential fixed investment expanded by 2.1 percent during that period, both building on positive results from the previous quarter.

The bureau estimated that GDP expanded 3.9 percent during the year's second quarter, while nonresidential fixed investment was revised upward to a 4.1 percent increase from an initial estimate of a 0.6 percent decrease. This marks the second consecutive release in which the previous quarter's nonresidential fixed investment figure was amended from negative to positive. Investment in nonresidential structures fell by 4 percent after growing by 6.2 percent in the second quarter.

"The U.S. economy is not quite as bad as the headline GDP number suggests," said ABC Chief Economist Anirban Basu. "Private final demand, an indicator that represents sales to nongovernmental domestic purchasers, expanded by 3.2 percent in the third quarter. Many economists consider this the most telling and persistent aspect of GDP, suggesting that the economy is healthier than some might suspect.

"The current quarter was heavily impacted by a foreseeable inventory adjustment, a stronger dollar and a weakening global economy," said Basu. "The fact that the recovery remains in place is reflected in fixed investment data, including the categories that relate most directly to nonresidential construction. While it is true that investment in structures slipped 4 percent, this largely appears to be a statistical give-back from the second quarter's better than 6 percent performance. Other data indicates ongoing momentum in nonresidential construction, which should be more apparent during ensuing GDP releases.

"The recovery will continue to be led by consumers," said Basu. "Interest rates will also feature prominently in terms of determining the extent to which the recovery will be sustained in 2016 and beyond. For now, ultra-low interest rates are inducing people to invest in order to generate financial yields. This has been a bonus for nonresidential construction, but potentially may be triggering over investment in certain construction segments."

Performance of key segments during the third quarter:

  • Personal consumption expenditures added 2.19 percent to GDP after contributing 2.42 percent in the second quarter.
  • Spending on goods grew 4.5 percent from the second quarter.
  • Real final sales of domestically produced output increased 2.9 percent for the third quarter after a 3.7 percent increase in the second quarter.
  • Federal government spending increased 0.2 percent in the third quarter after remaining unchanged in the second quarter.
  • Nondefense spending increased 2.8 percent after decreasing by 0.5 percent in the previous quarter.
  • National defense spending fell 1.4 percent after inching 0.3 percent higher in the second quarter.
  • National defense spending fell 1.5 percent after growing 1 percent in the first quarter.
  • State and local government spending expanded 2.6 percent during the third quarter after an increase of 4.3 percent in the second.

To view the previous GDP report, click here.

TAGS: Management
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