Does This Q3 GDP Jump Mean the Economy Is Back to Normal?

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On Wednesday, the United States Department of Commerce’s Bureau of Economic Analysis announced that third quarter gross domestic product — the broadest measure of goods and services produced in the United States — grew at an annual rate of 3.6 percent. Compared with the first quarter’s 1.1 percent annualized growth rate, the economy has gained some momentum in the past six months, with a 2.5 percent pace recorded in the second-quarter and a larger-than-expected increase in third-quarter economic activity. The increase surpassed analysts’ expectations for a 3.1 percent growth rate, and, beat the advanced estimate of 2.8 percent. More importantly, third quarter GDP would have been considered decent growth even before the 2008 financial crisis readjusted what is considered normal growth.

This revision of last month’s advanced estimate of third-quarter GDP primarily reflected acceleration in private inventory investment and in state and local government spending and a deceleration in imports. Those improvements were partially offset by a decelerations in exports, in personal consumption expenditures, and in nonresidential fixed investment — meaning business investment.

Ahead of November’s GDP reading, economists had expected the economy to grow at a 2 percent pace in the July through September period. But even the stronger 2.8 growth rate reading masked underlying weakness in consumer and business spending, an indication that the economic recovery was still struggling. That data suggested that the economic growth is remaining at the same weak pace that has characterized the five-year long recovery, despite expectations for an acceleration in the second half of the year. However, that acceleration now seems more likely, at least from a cursory glance at the data.

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