The Bureau of Economic Analysis (BEA) released the third estimate of real GDP growth for the third quarter of 2015, subtracting 0.1 percentage point from the second estimate, bringing growth down to 2.0%. GDP grew at an annual pace of 3.9% in the second quarter.
As with the revision from advance estimate to second, the most significant change between the second and third estimate was in inventory investment. The advance estimate took away a lot, slowing GDP growth from the second quarter. The second estimate put most of it back, restoring some growth. And the third estimate took a little of it away again, dampening growth again. Expect inventory investment to depress growth again next quarter.
Beyond the back and forth of changes to inventories, the outlook for growth is intact. Key components of economic activity remain strong. Personal consumption expenditures (PCE) were steady. Fixed investment, both residential and non-residential, as well as government spending, were revised up. On the downside, trade weakened, with exports softening and imports strengthening.
We expect economic growth to firm in coming quarters as the transitory effects of rebalancing inventories and declines in the energy sector dissipate. Downward pressure from trade, based on a strong dollar, is likely to have a more lingering effect, but recent strength in consumption and fixed investment should provide the momentum required for growth to accelerate.