Somewhat encouraging news emerged this morning on the U.S. economic front, pertaining to growth in the third quarter of calendar 2012.
Figures released in Washington show the advance estimate of US Q3 Gross Domestic Product growth was 2.0%. This marks an acceleration, albeit a modest one, from the 1.3% Q2 increase and matches the 2.0% gain in Q1. Consumer spending growth picked up to 2.0% in Q3 from a 1.5% in gain in Q2. As well, residential investment grew for a sixth consecutive quarter and with the pace accelerating to 14.4% in Q3 from 8.4% in Q2.
Preventing a stronger gain in Q3 GDP overall was a -1.3% drop in business investment, driven by a decline in nonresidential construction (-4.4%) and unchanged equipment and software investment. The drop in business investment was the first since Q1 of 2011 and suggests that uncertainty about the impact of the so-called “fiscal cliff” may be taking a toll on business confidence and spending.
The figures also show that government spending, unexpectedly, jumped 3.7% in Q3, reflecting largely a 13.1% jump in the often-volatile federal defense component. This likely reflects some retracement from declines earlier this year that looked somewhat overstated; however, strength in government spending will not be sustained going forward given the current emphasis on fiscal consolidation.
According to RBC Economics experts, "with that said, inventory growth unexpectedly moderated for a third consecutive quarter in Q3, subtracting 0.1 percentage points from GDP growth in the quarter. This was entirely the result of a decline in farm inventories that alone subtracted 0.4 percentage points from Q3 GDP growth, likely reflecting the impact of the summer drought. Net trade, on balance, subtracted 0.2 percentage points from Q3 GDP growth as a 1.6% drop in exports outpaced a 0.2% decline in imports.
"While slightly stronger than expected," the bank concludes, "much of the acceleration in Q3 GDP growth from Q2 can be traced to an unexpected jump in government spending that is unlikely to be repeated going forward. As well, the slowing in Q3 business investment likely reflects, at least in part, uncertainty about the upcoming so-called “fiscal cliff” weighing on confidence and investment spending in the second half of 2012. More encouraging, however, was the pickup in consumer spending growth as well as the continued expansion of residential investment. "
