The Commerce Department announced that GDP in the third quarter expanded with inflation and seasonally adjusted annual rate of 3.5%, which was revised from previous estimates of 3.2%. The 3.5% increase is the largest gain in two years, and shows the stronger consumer spending on services and better investment in buildings. Economists expected the economy to grow 1.9% for the full-year 2016 and 2.4% in 2017.
Consumer spending rose 3% in the third quarter, beating the estimates of 2.8%. Consumer spending makes up around 70% of GDP. Income growth, cheap gasoline, reduced debt and other factors promotes the consumptions.
Business investment increased 1.4%, which also surpassed expectation of 0.1%. In addition, commercial construction rose 12%, and equipment spending dropped 4.5%.
The trade gap was also narrowed as exports increased 10%, and imports rose 2.2%. However, due to the nine-month sluggish expansion this year, which the economy grew at 1%, the gain could only assist in pulling back the growth rate in line with the sluggish expansion.
“The challenge for the economy will be to sustain that momentum through the end of the year,” Jim Baird, the chief investment officer for Plante Moran Financial Advisors, said. “Fourth quarter GDP is expected to be solid, but slower on the heels of markedly cooler consumer spending.”
“Altogether, the third estimate of Q3 GDP paints a picture of a healthy consumer, likely fueled by ongoing gains in employment, modest increases in wages, and solid balance sheets," said Michael Gapen, the Chief U.S. economist of the Barclays. In addition, the Commerce Department said that orders from durable goods dropped 4.6% last month, while non-defense capital goods orders, excluding aircraft, rose 0.9%, which is a positive sign for GDP in the fourth quarter.