Inventories, Exports And Government Spending Boost GDP
October 28, 2016 - BEA Estimates 3rd Quarter 2016 GDP Growth to be 2.91%
In their first ("preliminary") estimate of the US GDP for the third quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +2.91%, up +1.49% from the prior quarter. Most of the reported improvement in the headline number came from a +1.77% quarter-to-quarter gain in inventories, a +0.96% rise in exports, and a +0.39% uptick in governmental spending.
Offsetting the improvements was an aggregate -1.41% reduction in the headline number from softening consumer spending on both goods and services. Fixed investments remained in contraction at a -0.09% annualized rate.
The BEA's treatment of inventories can introduce noise and seriously distort the headline number over short terms -- which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA's "bottom line" (their "Real Final Sales of Domestic Product") was a +2.30% growth rate, down -0.28% from 2Q-2016. If we take the BEA's "bottom line" at face value, economic growth actually softened during the third quarter.