Personal consumption expenditures carried the advance estimate of third quarter GDP to up 1.9%, a scant tenth below the up 2.0% of the second quarter. It is perhaps overstating it to call it an upside surprise, but it is better than expected. This presents something of a problem to the FOMC meeting of October 29-30 in that if growth isn’t slowing significantly and the labor market remains sturdy at this late stage of the expansion, how it is justified to cut short-term rates further? There should be an answer this afternoon when the FOMC releases its meeting statement at 14:00 ET and Chair Jerome Powell speaks with the press at 14:30 ET.
Personal consumption was up 2.9% in the third quarter, slower than the up 4.6% in the second quarter, but still the main contributor to growth. Consumers spent solidly, if less generously than in the prior quarter. Durables spending was up 7.6% in the third quarter after up 13.0% in the second, nondurables were up 4.4% after 6.5%, and services were up 1.7% after 2.8%.
Gross investment declines 1.5% in the third quarter, but was less negative than the down 6.3% in the second quarter. Consumer purchases of homes drove residential investment up 5.1% after declining 3.0%, while nonresidential decreases deepened to down 3.0% after down 1.0%.
Government consumption expenditure rose 2.0% in the third quarter after up 4.8% in the second.
Drag from net exports was not much greater in the third quarter at -$655.4 billion after widening to -$662.7 billion in the second. It was a similar story for the change in private inventories which was at $67.5 billion after $74.8 billion.
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