Upside Surprise for Economic Growth for the Third Quarter

In the third quarter of 2018, the nation’s economy grew at a slower pace than in the second quarter. According to the “advance” estimate released by the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter of 2018, following the strong growth in the second quarter. It is the 18th consecutive quarter of growth, as shown in Figure 1. The back-to-back growth rates for the second and third quarter were the fastest in four years.

Economic growth in the third quarter reflected the increases in gross private domestic investment, personal consumption expenditures (PCE), which, alone, accounts for about 70 percent of the overall economy, and government spending. In the third quarter, gross private domestic investment rose by 12.0 percent after decreasing 0.5 percent in the second quarter. Nonresidential investment increased a little with a decline in structure investment and a large increase in inventories, while residential investment decreased. Meanwhile, the decrease in exports and the increase in imports in the third quarter had negative contributions to economic growth.

The deceleration in economic growth in the third quarter reflected a downturn in exports and an upturn in imports. Exports decreased by 3.5 percent after a 9.3 percent increase in the second quarter. Imports increased by 9.1 percent after a 0.6 percent decrease in the second quarter.

The core PCE measure of inflation slowed to a 1.6% rate, compared to 2% for the second quarter. The Fed’s target for this rate is 2%.

Overall, this was a positive report: faster than expected growth despite export weakness, combined with slower inflation.

 



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