Third-Quarter GDP Grows At 3% Annualized Rate

A rise in inventories, likely the result of hurricanes, gave a boost to third-quarter GDP, at an inflation-adjusted 3.0 percent annualized rate which tops Econoday's high estimate. Transportation snags and backup in the supply chain may have given a boost to inventories which rose $35.8 billion in the quarter and contributed 0.73 percentage points to the quarter's GDP.

But the core of the report is solid led by personal consumption expenditures which came in at a roughly as expected 2.4 percent pace and contributed 1.62 points to the quarter. Durable spending was very strong, at 8.3 percent and reflecting, at least in part, hurricane replacement demand for vehicles.

Residential investment was one of the few weaknesses, falling at a 6.0 percent pace, with nonresidential investment rising at a respectable 3.9 percent rate. Net exports are a plus, narrowing nearly $20 billion to a $595.5 billion deficit and adding 0.41 points to the quarter. Price data are back in trend following a dip in the second quarter, at 2.2 percent overall and 1.7 percent excluding food & energy.

The rise in inventories would be a concern if demand was softening, but demand is steady and any inventory overhang is likely to be drawn down during the fourth quarter. Final sales, which exclude inventories, came in at a respectable 2.3 percent. This is a solid report that points to steady momentum going into the fourth quarter.

In a special note on Hurricanes Harvey and Irma, the Bureau of Economic Analysis can't estimate the net impact on GDP but it is releasing preliminary estimates of disaster losses: at $121.0 billion for privately-owned fixed assets. Note that Hurricane Maria which hit Puerto Rico is not assessed in the GDP report which excludes territories.

Recent History Of This Indicator:
Despite the heavy hurricanes, third-quarter GDP is expected to slow to a still respectable 2.5 percent annualized rate from the second quarter's very solid 3.1 percent. Consumer spending, seen at 2.3 percent vs 3.3 percent in the prior quarter, was mixed in the third quarter but will get a lift from vehicle replacement demand following Hurricanes Harvey and Irma. Business investment appeared solid but could soften from prior strength with net exports likely to contribute to growth. The GDP price index is seen rising to a 1.6 percent rate vs 1.0 percent in the second quarter.