WASHINGTON, D.C. (NewsFirst) – The U.S. economy grew at a faster pace than expected in the third quarter, as consumer spending, exports and government spending boosted output amid the pandemic.
The Commerce Department said Thursday that gross domestic product, the broadest measure of economic activity, increased at an annual rate of 4.9% in the July-September period. That was up from a 2.1% growth rate in the second quarter and above the 4.5% consensus forecast of economists surveyed by Reuters.
The third-quarter growth figure was an advance estimate based on incomplete data and could be revised later. The department will release a second estimate on November 29th.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.2% in the third quarter, after increasing 3.8% in the second quarter. Consumers spent more on services such as housing, health care and food, as well as on goods such as prescription drugs and recreational items.
Private inventory investment, which reflects changes in the stock of unsold goods held by businesses, also contributed to growth, increasing 6.1% in the third quarter, after decreasing 0.8% in the second quarter. Businesses increased their inventories of manufactured goods and retail products.
Exports, which add to GDP, rose 7.6% in the third quarter, after falling 6.6% in the second quarter. The increase reflected higher exports of goods such as industrial supplies and materials, automotive vehicles and parts, and consumer goods.
Government spending also supported growth, rising 3.4% in the third quarter, after increasing 0.8% in the second quarter. Federal government spending increased 5.9%, reflecting higher defense spending and pandemic-related outlays. State and local government spending increased 1.8%, reflecting higher spending on education and health services.
Residential fixed investment, which includes spending on housing construction and improvements, increased 3.7% in the third quarter, after decreasing 0.9% in the second quarter.
The only major component of GDP that subtracted from growth was nonresidential fixed investment, which includes spending on structures, equipment and intellectual property products by businesses and nonprofits3. It decreased 1.1% in the third quarter, after increasing 1.6% in the second quarter. The decrease reflected a decline in spending on equipment such as computers, software and transportation equipment.
Imports, which subtract from GDP, increased 5.7% in the third quarter, after decreasing 2.8% in the second quarter. The increase reflected higher imports of goods such as consumer goods, automotive vehicles and parts, and industrial supplies and materials5.
The GDP report showed that inflation pressures moderated slightly in the third quarter, after surging in the second quarter. The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3% in the third quarter, compared with a 1.4% increase in the second quarter.
The personal consumption expenditures price index, which is the Federal Reserve’s preferred inflation gauge, increased 2.9% in the third quarter, compared with a 2.5% increase in the second quarter. Excluding food and energy prices, the core PCE price index increased 2.4% in the third quarter, compared with a 3.7% increase in the second quarter.
The Fed targets a 2% annual increase in core PCE inflation over the long run.
Personal income, which includes wages, salaries, profits and government benefits, increased $199.5 billion in the third quarter, compared with an increase of $239.6 billion in the second quarter.
Disposable personal income, which is income after taxes and other deductions, increased $95.8 billion or 1.9%, in the third quarter, compared with an increase of $296.5 billion or 6.1%, in the second quarter.
Real disposable personal income, which is adjusted for inflation, decreased 1%, in contrast to an increase of 3.5%.
Personal saving was $776.9 billion in the third quarter, compared with $1 trillion in the second quarter.
The personal saving rate — personal saving as a percentage of disposable personal income — was 3.8% in the third quarter, compared with 5.2% in the second quarter.
