GDP Revised Up from First Estimate

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Nov 28, 2014

The Bureau of Economic Analysis released its second estimate for third quarter GDP this week. The second estimate was revised up 0.4% from the advance estimate of 3.5%. Most economists had expected the second estimate to remain unchanged or be revised down slightly with a consensus growth estimate expectation of 3.3%.

At 3.9% the seasonally adjusted annual rate of growth for GDP is 0.7% below the previous quarter’s reading of 4.6%. However, the past two quarters have been positive showing sustained economic growth since the economy’s -2.1% GDP growth rate in the first quarter of the year.

All major categories showed production growth in the third quarter. Personal consumption expenditures reported a growth rate of 2.2%. Gross private domestic investment had a 5.1% seasonally adjusted annual rate of growth including a residential investment growth rate of 2.7%. The rate of growth for government expenditures was significantly higher at 4.2% versus 1.7% in the second quarter. Federal national defense expenditures propelled the government expenditures rate higher with a 16% growth rate.

The upwardly revised estimate for GDP helps to show continued production improvements for the U.S. economy. The continued improvement in GDP reported for the third quarter is consistent with the Federal Open Market Committee’s outlook for the U.S. economy. GDP estimates from the FOMC are 2.0% to 2.2% for 2014 and 2.6% to 3.0% for 2015. Given the third quarter report and sustained improvement in the fourth quarter the FOMC is likely to remain on track for a rate increase near the end of 2015.

In the first half of the shortened trading week the Dow Jones Industrial Average has gained 0.12%. Following the GDP announcement on Tuesday the Dow Jones Industrial Average finished up 0.02% for the day with consumer stocks Disney (DIS, Financial), Coca-Cola (KO, Financial) and Procter & Gamble (PG, Financial) leading the day’s gain for the index. On Tuesday, industrial stocks Boeing (BA, Financial) and United Technologies (UTX, Financial) were also higher.