Economic Growth Remained Robust in Third Quarter; GDP Up 3.5%

Following an economic surge in the second quarter of 2014, the U.S. economy expanded at an annualized rate of 3.5 percent in Q3, according to the Commerce Department. The number exceeded economists’ expectations of around 3 percent growth.

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 3.5 percent in the third quarter of 2014, according to the “advance” estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 4.6 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

It’s the second-best two-quarter stretch for GDP since the recession ended. Only Q4 2011-Q1 2012 performed better.

Many analysts have upped their predictions for fourth quarter GDP growth to around 3 percent. If those predictions verify, it would be the best three-quarter stretch for economic growth since 2004/2005.

In the third quarter of 2014, real personal consumption expenditures increased 1.8 percent, compared with an increase of 2.5 percent in the second quarter. Nonresidential fixed investment increased 5.5 percent in the third quarter, compared with an increase of 9.7 percent in the second.

But the real needle mover was government spending, with federal government consumption expenditures and gross investment increasing 10 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. Almost all of the federal spending growth was due to a 16 percent increase in defense expenditures.