U.S. economy gets surprising third quarter bump, second GDP estimate improves to 3.2%

The U.S. economy surprisingly picked up momentum in the third quarter as consumer and government spending improved and other key sectors of private industry improved just ahead of the fall elections.

According to the “second” estimate released Tuesday (Nov. 29) by the Bureau of Economic Analysis, the quarterly GDP report – the second of three estimates by the BEA – was above the “first” third quarter GDP estimate of 2.9% on Oct. 28, and a marked improvement over tepid growth of only 1.4% in the third quarter of 2015.

The third quarter GDP report is also significantly better than the first half of 2016 when U.S. economic expansion was well below post-recession levels. 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 primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, and federal government spending, that were partially offset by negative contributions from residential fixed investment and state and local government spending.

Despite the better-than-expected third quarter expansion, Chuck Vollmer of Jobenomics said the U.S. economy is still in a period of weak, or “sclerotic growth,” which makes the U.S. economy vulnerable to financial downturns. Vollmer said overall annual GDP growth for 2016 will still likely remain below 2%.

“GDP for the entire 2016 year is likely to be between 1.4% and 1.8% (sclerotic growth) assuming no major financial or major international crises, which is a bold assumption considering today’s turbulent and volatile economic conditions,” Vollmer noted in his recent 140-page third quarter employment analysis.

Overall, current-dollar GDP increased 4.6%, or $207.8 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 1.5% 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%.

Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) increased $133.8 billion in the third quarter, in contrast to a decrease of $12.5 billion in the second.

Profits of domestic financial corporations increased $50.9 billion in the third quarter, compared with an increase of $5.6 billion in the second. Profits of domestic nonfinancial corporations increased $76.5 billion, in contrast to a decrease of $56.1 billion.

The rest-of-the-world component of profits increased $6.4 billion, compared with an increase of $38 billion. This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world. In the third quarter, receipts decreased $0.2 billion, and payments decreased $6.6 billion.

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 third and final estimate for the third quarter GDP report on Dec. 22. The GDPNow model forecast for real GDP growth in the fourth quarter of 2016 is 3.6%, according to the Atlanta Federal Reserve.