U.S. economy grew at a 3.3% pace in Q3, beating expectations.
The news on the economy had previously been good, but it just got a little better.
Updated data released this morning revealed that the U.S. economy grew at a 3.3% pace in the third quarter, modestly surpassing the consensus expectation of 3.2%. Not only did the revision slightly exceed expectations, it also provided an upward revision to the initial estimate of 3.0% growth for the quarter.
Consumer spending, the primary pillar of growth for the economy, grew again in the third quarter, but at a slower pace – up 2.3% vs. 3.3% in the previous three months.
Of particular note was the buildup in inventories, which contributed 0.8% to growth. Business investment, which has disappointed for several years, had surged earlier in 2017, but softened a bit in Q3 on softening investments in structures. Still, investment in equipment rose by 10.4% - the sharpest quarterly increase in two years. As labor markets have tightened and the availability of skilled labor has diminished, businesses appear to be looking increasingly to upgrading equipment to improve productivity.
Residential investment (consumer purchases of newly constructed homes) slipped for the second consecutive quarter as well – a curious development given the strength of the labor market and an upbeat consumer mood.
Looking ahead toward the fourth quarter, much attention will be given to the state of the consumer and household spending. Retail sales, a strong indicator of consumption patterns, rose over the past quarter and should continue to support growth. Preliminary estimates indicate that the kickoff to the holiday shopping season last week was a success for retailers, bringing good news to both online and bricks-and-mortar stores. Black Friday sales may have increased at the strongest pace in several years, which bodes well for consumer spending to propel the economy to a strong finish to the year.
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