GDP Growth Accelerated to 2.0% in Third Quarter

Real GDP growth in the U.S. accelerated to 2.0% in the third quarter, following a disappointing 1.3% growth in the first. The improvement seen in the third quarter puts growth on par with the first quarter of the year, but much slower than the 4.1% growth seen at the end of last year.

ABA Chief Economist James Chessen commented, “Despite the improvement in the third quarter, growth remains weak at 2 percent. Furthermore, the economic recovery faces a number of serious challenges moving into next year. The uncertainty associated with the fiscal cliff, for example, has already begun to have an impact on growth.”

Third quarter growth was led by government, which grew by 3.7%, its fastest growth in 3 years. This translates to a 0.71% boost to real GDP growth, up from the 0.14% drag in the second quarter. The boost provided by government in the third quarter will likely prove unsustainable as fiscal tightening begins at the end of the year.

Consumer spending improved in the third quarter as well increasing 2% in the third quarter. This translates to a 1.42% boost to real GDP growth over the quarter. Improving consumption is an important part of any economic recovery, as it is the largest component of GDP.

Net exports slowed notably in the third quarter amid global weakness, presenting a drag on GDP growth for the first time in two quarters. Net exports were a 0.18% drag on economic growth, as opposed to the 0.23% boost in the second quarter. Nonresidential fixed investment and Inventories also proved drags on growth, dragging 0.13% and 0.12% respectively.

Read the BEA release.