As expected, the US economy rebounded in the third quarter, with strength in consumption supplemented by rebounds in the fixed investment categories.
Third quarter GDP rose by 33.1%, compared with the 30.9% increase expected, the Commerce Department reported Thursday. Still, GDP was down 2.9% from the third quarter of 2019, an indication of the impact that the COVID-19 shutdowns had on economic growth. GDP fell by 5.0% in the first quarter and 31.4% in the second quarter.
In the third quarter, personal consumption expenditures rebounded by 40.7%, a larger gain than the 38.9% increase expected, following a 33.2% decline in the previous quarter.
Goods consumption rose by 45.4%, while services spending rose by 38.4%, in line with the recovery seen in the retail sales data.
Residential fixed investment jumped by 59.3% after a 35.6% decrease in the previous quarter. The pace of the home building data has been brisk in the third quarter as interest rates remain near record lows and home sales rose solidly.
Non-residential fixed investment rose by 20.3% in the third quarter after a 27.2% drop in the previous quarter, reflecting a 70.1% rebound in equipment spending. Notably, spending on non-residential structures declined by 14.6%, a fourth straight drop that reflects reduced spending on office buildings.
Inventories fell by $1.0 billion in the third quarter, a strong improvement from the $287.0 billion decrease in the previous quarter, as production picked up to offset some of the rebound in demand. The advance trade data released Wednesday showed that inventories surged in September after increases in July and August, so the rebound was expected.
Offsetting these improvements was the net export gap, which widened to a shockingly large $1.0101 trillion from $775.1 billion in the previous quarter. The gap reflected a 91.1% jump in imports only partially offset by a 59.7% gain in exports as global demand rebounded.
Advance trade data for September released Wednesday showed that exports rose and imports declined to end the quarter.
Government spending fell by 4.5% in the third quarter. There was a 6.2% decrease in federal government spending due to the expiration of COVID-19 stimulus measures. At the same time, state and local government spending fell by 3.3% after a 5.4% decline in the second quarter, reflecting reduced school spending and lower tax revenues.
The overall GDP price index rose by 3.6% after a 1.8% decrease in the previous quarter. The PCE price index rebounded by 3.7% after a 1.6% decrease, while the closely watched core PCE price index rose by 3.5% after a 0.8% decrease in the second quarter, lifting the year/year rate to 1.4% from 1.0%, still down from the pre-COVID period.
In other data released on Thursday, initial jobless claims slowed by 40,000 to 751,000 in the October 24 week, below the 758,000 level expected and the fourth decline in the last five weeks.
The four-week moving average fell by 24,500 to 787,750 in current week, maintaining the downward trend for the 13th week in a row.
Unadjusted initial claims fell by 28,354 in the current week, compared with seasonal adjustment expectations for a small increase.
Continuing claims fell by 709,000 to 7.756 million in the October 17 employment survey week down sharply from 12.747 million in the September 12 employment survey week and a positive for the October employment report released next week.