"One of the reasons to be skeptical about the prospects for above average GDP growth next year is the knowledge that state and local government spending will continue to fall, at least in real terms." —ABC Chief Economist Anirban Basu.
In a sign that the nation’s economy is growing at a below average pace, nonresidential fixed investment increased 9.7 percent in the third quarter of 2010 following a 17.2 percent increase in the second quarter of the year, according to the October 29 gross domestic product (GDP) report by the U.S. Commerce Department.
Nonresidential fixed investment in structures increased 3.9 percent following a revised decrease of 0.5 percent in the second quarter. This marks the first increase since the second quarter of 2008. Nonresidential fixed investment in equipment and software jumped 12 percent following even larger gains in the previous three quarters.
Residential fixed investment dropped 29.1 percent in the third quarter after climbing 25.7 percent in the second quarter. Total exports increased 5 percent in the third quarter as exports of goods were up 3.4 percent and exports of services increased 8.6 percent. Imports grew 17.4 percent in the third quarter as imports of goods were up 18.1 percent and imports of services were 14.1 percent higher.
Personal consumption expenditures increased 2.6 percent in the third quarter as expenditures in goods were up 2.8 percent and expenditures in services edged up 2.5 percent. Change in private inventories added 1.44 percentage points to real GDP in the third quarter as private businesses increased inventories by $115.5 billion in the quarter. Final sales – GDP less change in private inventories – increased 0.6 percent in the third quarter following a 0.9 percent increase in the second. Federal government spending was up 8.8 percent in the third quarter as defense spending was increased 8.5 percent and nondefense spending was 9.6 percent higher. State and local government spending was down 0.2 percent in the third quarter.
Gross domestic purchases, or purchases by U.S. residents of goods and services wherever produced, increased 3.9 percent in the third quarter following a 5.1 percent gain in the second quarter. Overall, real GDP increased 2 percent in the third quarter on a seasonally adjusted annual rate. This represents the fifth straight quarter of growth in GDP as the recession officially ended in June 2009.
Analysis
“Today’s GDP report was roughly in line with expectations. Virtually every major economic forecaster believed that the third quarter represented a period of economic expansion for the U.S. economy, albeit at a below average pace,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Today’s release also reinforces the notion that certain segments of the U.S. economy continue to benefit from ongoing efforts to stimulate economic activity – including nonresidential fixed investment – as stimulus money continues to be spent down.
“The report also reasserts the ongoing expansion in information technology as investments in computers and equipment surged 12 percent. However, the most uplifting aspect of the report was the estimate of growth in nonresidential fixed investment in structures, which was up 4 percent on an annualized basis during the quarter. This suggests that the broader economic recovery that began in June of 2009 is beginning to be reflected more forcefully in nonresidential building activity,” said Basu.
“In contrast, the report reinforced certain prevailing negative notions regarding the U.S. economy,” Basu said. “The U.S. market continues to slump with residential investment falling 29 percent, despite broader economic recovery and the availability of record low or near record low mortgage rates.
“One of the reasons to be skeptical about the prospects for above average GDP growth next year is the knowledge that state and local government spending will continue to fall, at least in real terms. This will also impact the construction sector as states and localities adjust both operating and capital budgets,” said Basu.
To view the previous GDP report, click HERE.
