GDP Growth Is Stronger Than Expected

Overall, the report shows a gradually improving economy that has skirted the possibility of another near term decline, but still has some distance to go before making up all the lost ground in the Great Recession. Courtesy of NAHB

Bureau of Economic Analysis reported GDP growth of 2 percent in the third quarter today. We'll take it as good news that this is better than our recent forecast of 1.7 percent. Encouraging signs include accelerating personal consumption expenditures (PCE) from 2.2 percent growth last quarter to 2.6 percent in the third.

This is the third consecutive improvement in the pace of PCE, a critical factor for gaining momentum in this recovery. A modest decline in the personal savings rate from 5.9 to 5.5 percent is also helpful on this front and the rebuilding of inventories continues.

Less good news comes from the trade sector, which continues to subtract from GDP growth. Growth in imports slowed from the second quarter surge (33.5 percent) but remained strong (17.4 percent) while growth in exports slowed.

Home building's contribution to GDP growth, residential fixed investment (RFI), turned negative in the third quarter, reflecting the slowdown in construction associated with the expiration of the home buyer tax credit. We expect this to be a single quarter event with RFI returning to growth and positive contributions to GDP growth next quarter and next year.

- Courtesy of NAHB