GDP Growth in 3rd Quarter Accelerated by Consumption, Defense Spending

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Written by CEPR   
Friday, 26 October 2012 12:00

GDP growth accelerated modestly in the third quarter to a 2.0 percent annual rate, driven by an 8.5 percent growth rate in durable good purchases, a 13.0 percent rise in defense spending, and a 14.4 percent rise in housing investment, according to the Bureau of Economic Analysis' latest report on the Gross Domestic Product. The increase in durable goods sales came after a modest drop in the second quarter. Most of the growth in durables was in the recreational goods and vehicles category, which expanded at a 13.4 percent annual rate. Defense spending surged after having fallen the prior three quarters. The timing of defense spending is always erratic and this increase is unlikely to be repeated.

Investment was extraordinarily weak in the quarter, shrinking at a 1.3 percent annual rate. Uncertainties surrounding tax and regulatory policy will clear up after the election, which will lead to more investment, but there is no other sector that is likely to see a substantial uptick any time soon. Deficit reduction that will take place in 2013 will be a damper on growth, making it unlikely that we will be able to sustain growth much above the economy’s 2.5 percent potential.

For a more in-depth analysis, check out the latest GDP Byte.