Although robust consumer spending continues to bolster the nation’s economy, real U.S. gross domestic product (GDP) in the third quarter grew at a lukewarm rate of 1.9%, down from the 2% expansion in the second quarter, according to the “advance” estimate released by the Bureau of Economic Analysis.
Despite the lower quarterly GDP reading – which measures the value of goods and services produced by the nation’s economy less the value of the goods and services used in production — the U.S. expansion entering into the second half of 2019 was above the 1.8% and 1.7% forecasts by the Federal Reserve Banks of Philadelphia and Atlanta, respectively.
The nation’s bellwether economic report came just ahead of the Federal Open Market Committee (FOMC) monetary policy decision to cut the federal fund rates for the third time in a row by a quarter basis point to 1.5% from 1.75%.
“This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate,” the Fed noted in a statement.
Wednesday’s “advanced” GDP reading is based on incomplete source data that is subject to revisions by the BEA, which is the economic research arm for the U.S. Department of Commerce. The “second” estimate for the third quarter, based on more complete data, will be released Nov. 27, 2019.
Based on Wednesday’s report, the increase in real GDP growth in the third quarter continued residential fixed investment and strong consumer spending that partly offset weakness in business spending that is impacted by concerns about U.S. trade and the global outlook.
Overall, BEA data shows current-dollar GDP increased 3.5%, or $185.6 billion, to a level of $21.53 trillion in the third quarter. In the second quarter, current-dollar GDP rose by 4.7%, or $241.4 billion. Current-dollar personal income increased $172.8 billion in the third quarter, compared with an increase of $244.2 billion in the second quarter. The deceleration reflected a downturn in personal income receipts on assets and decelerations in compensation, BEA noted.
Disposable personal income increased $181.7 billion, or 4.5%, in the third quarter, compared with an increase of $192.6 billion, or 4.8%, in the second quarter. Real disposable personal income rose 2.9% in the third quarter, compared to an increase of 2.4% in the previous three-month period.
Personal saving was $1.34 trillion in the third quarter, compared with $1.32 trillion in the second quarter. The personal saving rate – personal saving as a percentage of disposable personal income – was 8.1% in the third quarter, compared with 8% percent in the second quarter.
Despite the economic slowdown, the tepid 1.9% GDP growth was in line with The Conference Board’s highly watched third quarter forecast, which showed that consumer spending continues to propel the nation’s economy forward after “a very strong Q2 consumption growth of 4.6%.”
“Consumer spending should continue to support growth, despite the weakness in business spending driven by high uncertainty in the global outlook,” said Ataman Ozyildirim, senior director of economics for the nonpartisan think tank. “The divergence between consumers’ outlook and business confidence is again reflected in this report.”