Real GDP grew in the third quarter, after shrinking for the first two straight quarters of 2022. This quarter’s growth was mostly fueled by a decline in the trade deficit. More important, the data from the GDP report suggests that inflation is cooling. The GDP price index, rose 4.1% for the third quarter, down from a 9.0% increase in the second quarter. Also, the Personal Consumption Expenditures (PCE) price Index, capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior, rose 4.2% in the third quarter, down sharply from 7.3%. Looking forward, a mild recession is expected in the coming year as the Federal Reserve continues to tighten financial conditions.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 2.6% in the third quarter, following a 0.6% decrease in the second quarter and a decline of 1.6% in the first quarter. This quarter’s increase reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, partially offset by decreases in residential fixed investment and private inventory investment.
In the third quarter, exports increased 14.4%, while imports, which are a subtraction in the calculation of GDP, decreased 6.9%. Net exports rose by $156.6 billion in the third quarter, contributing 2.77 percentage points to GDP growth.
Meanwhile, federal government spending increased 3.7% in the third quarter, reflecting increases in both national defense and nondefense spending, while state and local government spending rose 1.7%, led by an increase in compensation of state and local government employees.
Consumer spending rose at an annual rate of 1.4% in the third quarter, down from a 2.0% increase in the second quarter. An increase in services was partly offset by a decrease in goods services. While expenditures on services increased 2.8% at an annual rate, goods spending decreased 1.2% at an annual rate, led by motor vehicles and parts (-11.7%) as well as food and beverages (-3.8%).
Nonresidential fixed investment increased 3.7% in the third quarter. Increases in equipment and intellectual property products were partly offset by a decrease in structures. Within residential fixed investment, single-family structures declined 36.3% at an annual rate, multifamily structures declined 5.5% and other structures (specifically brokers’ commissions) decreased 21.5%.
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