Three Charts on Q3 (US GDP, That Is)

Friday’s first estimate of US Q3 GDP showed growth of +2.0% in the quarter, an uptick from Q2’s +1.3% rate, exceeding analysts’ estimates. Under the hood, there were some stronger points and some weaker, but overall there’s little here representing a sharp divergence from other recent reports.

Like the headline growth rate, consumer spending (the lion’s share of US economic activity) grew 2.0% in the quarter, accelerating and adding 1.42 percentage point to headline growth. Which isn’t a huge surprise, considering back-to-school shopping season results had already shown gains.

Exhibit 1: Quarterly Percent Change in Consumer Spending (Real Personal Consumption Expenditures)

Source: US Bureau of Economic Analysis.

Gross private domestic investment—the broad category containing businesses’ capital expenditures, real estate and inventory change—added 0.33 percentage point to growth in the quarter.

For the 12^th consecutive quarter, state and local government spending fell, detracting slightly from headline growth. While this government spending trend continued, the federal government’s spending pattern reversed. In the quarter, federal government spending rose 9.6% after it had fallen in six of the last seven quarters and four in a row. The federal government’s increase was paced by a 13% or $21 billion increase in defense spending, which accounted for 0.64 percentage point of the federal government’s 0.71 percentage point contribution to growth. (Non-defense spending rose 3.0%, or $2.5 billion.) Exhibit 2 shows government spending by political entity. Exhibit 3 shows federal government spending by broad category.

Exhibit 2: Total Government Spending by Entity

Source: US Bureau of Economic Analysis.

Exhibit 3: Federal Government Spending by Major Category

Source: US Bureau of Economic Analysis.

Trade, as measured by net exports and imports, subtracted -0.18 percentage point from growth in the quarter. Exports’ -1.6% quarterly decline subtracted -0.23 percentage point from headline growth. Meanwhile, a slight dip in imports added 0.04 percentage point to growth (GDP counts rising imports as a minus and falling as a plus, a quirk in its calculation). This dipping trade obviously isn’t a great sign, but there are already indications in trade reports from major countries abroad indicating the quarter’s slowdown in total trade may not represent a lasting trend.

So while there were some notable small changes in the quarter, it seems as though the big picture changed little in Q3—economic expansion continued for the 13^th straight quarter and seems likely to continue ahead.