Exports and Structures Drive Third Quarter GDP Growth

October 31, 2007 (GDP Byte)

Exports and Structures Drive Third Quarter GDP Growth

GDP Byte by Dean Baker

For Immediate Release: October 31, 2007
Contact: Alan Barber, (202) 293-5380 x115

“Goods exports grew at their fastest pace since 1989."

GDP rose at a 3.9 percent annual rate in the third quarter, driven by a 16.2 percent surge in exports growth and a 12.3 percent rise in investment in non-residential structures. A 9.7 percent jump in defense spending coupled with solid 3.0 percent growth in consumption were more than enough to offset a 20.1 percent decline in residential construction.

The increase in exports was the largest since a 20.8 percent increase in the fourth quarter of 2003. Interestingly, this rise was driven almost exclusively by goods exports, which rose at a 23.0 percent annual rate. Exports of services increased at just a 1.6 percent rate. The rise in goods exports was the fastest since a 24.7 percent jump in the second quarter of 1989, which was also driven by a falling dollar. Net exports contributed 0.93 percentage points to growth in the quarter. This is somewhat less than the 1.32 pp contribution in the second quarter, since imports rose this quarter after falling in the second quarter.

The rise in non-residential structures added 0.4 pp to GDP growth. Non-residential structure investment has soared since the fourth quarter of 2005, rising at a 13.3 percent annual rate. It currently accounts for 3.4 percent of GDP. Its share never exceeded 3.3 percent in the late 90s boom. This boom is explained by the fact that the housing boom pulled resources away from non-residential construction, creating a backlog of projects. This backlog is now being filled, causing growth to falloff in the quarters ahead.