Third Quarter U.S. Economic Growth Stronger than Expected; GDP Up 2.8%

The U.S. economy in the third quarter of 2013 expanded at a 2.8 percent rate compared to the second quarter, according to data released by the Commerce Department Thursday.

Commerce’s Bureau of Economic Analysis said that real gross domestic product (GDP) grew at a 2.8 percent annual rate from July to September 2013, the exact same rate of growth from the third quarter of 2012. GDP grew at a 2.5 percent rate in the second quarter.

With the 2.8 and 2.5 percent growth rates, economic expansion over the past two quarters is the fastest for a six-month period since the fourth quarter of 2011 and first quarter of 2012.

Analysts and economists had predicted GDP growth in the neighborhood of 2.3 percent for the third quarter. The announcement was a bit of a surprise. But the underlying data largely supported the predictions, as the main drivers in the overage were an increase of inventories and higher than expected investment in houses.

Consumer spending, the largest measure in GDP, expanded at a 1.5 percent rate in the third quarter, down from 1.8 percent in the second quarter. Spending on new homes grew 14.6 percent, up from 14.2 percent in the second quarter and 12.5 percent in the first quarter.

Federal government consumption expenditures and gross investment decreased 1.7 percent in the third quarter, compared with a decrease of 1.6 percent in the second, while state and local government consumption expenditures and gross investment increased 1.5 percent, compared with an increase of 0.4 percent last quarter.

The change in real private inventories added 0.83 percentage point to the third-quarter change in real GDP after adding 0.41 percentage point to the second-quarter change.  Private businesses increased inventories $86.0 billion in the third quarter, following increases of $56.6 billion in the second quarter and $42.2 billion in the first.

Economists are predicting slightly more strengthening in the economy overall in the fourth quarter. But the impact of the 17-day federal government shutdown is likely to take a toll on the official GDP growth rate. Official predictions now coming in peg the number at around 2 percent.

In other economic news, the official employment report is due out Friday, delayed a week by the shutdown. In advance of the report, the Labor Department today said that initial jobless claims declined by 9,000 to a seasonally adjusted 336,000 in the week ended Nov. 2.

The Federal Reserve is also expected to release consumer credit data later today for the month of September.