U.S. GDP Grew 3.9% In Third Quarter 2014, Up From First Estimate

On Tuesday, the Bureau of Economic Analysis released its second estimate of real gross domestic product for the third quarter of 2014 — covering July, August and September of this year. The release showed output in the U.S. increasing at an annual rate of 3.9%. This is relative to the first quarter when real GDP gained 4.6%.

The revision is up significantly from BEA’s 3.5% advance estimate that was released last month. The revision, BEA said in a release, was due to a smaller decrease in private inventory investment than previously estimated. Personal consumption expenditures and nonresidential fixed income investment also increased more than thought before. On the other hand, export growth was slower than previously thought.

In addition to personal consumption, nonresidential fixed investment and exports, overall the 3.9% increase in real GDP reflected growth in residential fixed income investments and pick up at all levels of government spending. Imports, which negatively impact GDP, decreased in the quarter. The gains were partially offset by a decrease in private inventory investment. A deceleration in growth from all GDP components, save federal government spending, led to the slower overall percent gain than seen in the second quarter.

Joseph Lake, U.S. analyst for The Economist Intelligence Unit, described the U.S. economy as “in rude health, outperforming most countries in the developed world.” Lake pointed out that the U.S. economy has grown at an annual rate of more than 3% for four of the past five quarters, which he says suggests the country “is finally casting aside the shackles imposed by the financial crisis.” While the growth was distributed across most components Lake noted that government spending and net exports were among the strongest gainers but “their momentum is unlikely to persist.”

The price index for gross domestic purchases — which measures prices paid by U.S. residents — increased 1.4%, up from the prior estimate of 1.3% and compared to 2% growth in the second quarter. Real personal consumption expenditures excluding food and energy prices increased 1.6%, down from the 1.7% increase last quarter.

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite accelerated modest gains clocked in before the pre-market release.

BEA — a division of the Department of Commerce – will release its third estimate of third quarter GDP on December 23 and its advance full year 2014 estimate on January 20, 2015.