Real gross domestic product grew at a brisk 2.9% in the third quarter as consumer spending picked up steam in the second half of 2016 just ahead of the Nov. 8 presidential election, according to the “advance” estimate released Friday (Oct. 28) by the Bureau of Economic Analysis.
The advance third quarter GDP estimate, which is the first of three estimates by the Department of Commerce’s BEA research group, was well above the latest GDPNow model forecast of 2.1% by the Atlanta Federal Reserve on Thursday.
The third quarter GDP report is also a marked improvement over the first half of 2016 when U.S. economic expansion was tepid at best. Real GDP, which is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, increased at an annual rate of 2% in the first quarter and fell even lower in the second quarter to 1.4%.
According to the BEA, the increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from residential fixed investment and state and local government spending.
The acceleration in real GDP growth in the third quarter reflected an upturn in private inventory investment, an acceleration in exports, a smaller decrease in state and local government spending, and an upturn in federal government spending. These were partly offset by a smaller increase in PCE, and a larger increase in imports, the BEA said.
MIXED CONSUMER CONFIDENCE SIGNALS
Despite Americans spending more and having more money at their disposal, the Conference Board reported earlier this week that overall consumer confidence in the U.S. had declined in October, after moving higher in two consecutive months.
“Consumer confidence retreated in October, after back-to-back monthly gains,” said Lynn Franco, director of Economic Indicators at The Conference Board. “Consumers’ assessment of current business and employment conditions softened, while optimism regarding the short-term outlook retreated somewhat. However, consumers’ expectations regarding their income prospects in the coming months were relatively unchanged. Overall, sentiment is that the economy will continue to expand in the near-term, but at a moderate pace.”
On the other hand, Americans’ personal financial satisfaction has risen to the highest level since the first quarter of 2007 on the strength of rising home equity and a decrease in loan delinquencies, according to a new report released on Thursday by the American Institute of CPAs,
“With the country facing the uncertainty of a Presidential election, the positive reading of the PFSi is a strong indicator that, despite political turmoil, the average American’s financial situation is pretty good these days,” said Kelley Long, CPA/PFS, member of the AICPA’s Consumer Financial Education Advocates group. “American’s personal financial satisfaction has continued to improve steadily and, regardless of the outcome of the election, is trending in the right direction with room to grow in 2017.”
OTHER GDP DATA
Overall, current-dollar GDP increased 4.4%, or $201.1 billion, in the third quarter to a level of $18.6 trillion. In the second quarter, current dollar GDP increased 3.7%, or $168.5 billion. The price index for gross domestic purchases increased 1.6% in the third quarter, compared with an increase of 2.1% in the second quarter. The PCE price index increased 1.4%, compared with an increase of 2%.
Excluding food and energy prices, the PCE price index increased 1.7%, compared with an increase of 1.8% in the previous quarter.
The BEA report noted that current-dollar personal income increased $153.6 billion in the third quarter, compared with an increase of $153.1 billion in the second. Disposable personal income increased $125.3 billion, or 3.6%, in the third quarter, compared with an increase of $140.6 billion, or 4.1%, in the second.
Real disposable personal income increased 2.2%, compared with an increase of 2.1%. Personal saving was $800.6 billion in the third quarter, compared with $793.5 billion in the second. The personal saving rate – personal saving as a percentage of disposable personal income – was 5.7% in the third quarter, the same as in the second.
According to the BEA, “advance” estimates, based on source data that are incomplete or subject to further revision by the BEA, are released near the end of the first month following the end of the quarter. As more detailed and more comprehensive data becomes available, “second” and “third” estimates are released near the end of the second and third months, respectively.
The BEA is expected to release the second estimate for the third quarter GDP report on Nov. 29.