The Bureau of Economic Analysis’ second estimate of Q3-2023 real GDP was revised 0.3 percentage points (pp) higher to 5.2% quarter-over-quarter (q/q, annualized).
Consumer spending advanced by 3.6% – a modest downward revision from the 4.0% gain reported in the advance estimate. Healthy gains in spending were seen across both goods (+4.7%) and services (+3.0%).
Business fixed investment expanded by 1.3% – an upgrade from the near flat reading previously reported – with the revision largely concentrated in non-residential structures (+6.9% from 1.6%). Meanwhile, equipment spending fell by 3.5%, while intellectual property products expanded by 2.8%.
Residential investment rose by 6.2%, snapping what had been nine consecutive quarters of declines.
Government spending expanded by a robust 5.5% (up from the previously reported 4.6% gain) and added nearly a full percentage point to third quarter growth. Gains were seen across both federal (+7.0%) and state & local (+4.6%) spending.
Inventory investment added a meaningful 1.4 pp to GDP, while net trade had no overall impact as a strong gain in exports (+6.0%) was completely offset by a slightly smaller rise in imports (+5.2%).
Real Gross Domestic Income rose by 1.5% in the third quarter, an acceleration from the downwardly revised gain of 0.5% (previously 0.7%) in Q2. Corporate profits were meaningfully higher, rising by 14.0% (annualized) or $105.6 billion after accounting for inventory valuation and capital consumption adjustments. Personal income rose by a healthy 3.9%, largely unchanged from Q2’s gain.
- Measured as a share of nominal GDP, corporate profits inched higher by 0.2 pp to 11.9% and remain slightly above the 2018-2019 average of 11.5%.
Key Implications
At the beginning of 2023, most forecasters expected the U.S. economy to be contracting or at least slowing through the second half of this year. Instead, Q3 growth expanded at a pace that was more than double the previous quarters’ rate of growth, and well above what most believe to be the economy’s underlying potential growth rate of 1.8%.
While we expect growth to downshift in the fourth quarter, our current tracking still has the U.S. economy expanding by 1.8% to round out the year. The Atlanta Fed’s GDPNow tracking is even stronger at 2.1%. These numbers are inconsistent with returning price stability and could require a further tightening in the policy rate unless we see a more decisive slowing in economic activity through early-2024.
