Increase Driven By Government Spending, Drop In Imports
The Department of Commerce reported on Thursday
that US GDP grew at an annual rate of 3.5% during the 3rd quarter, above
economists’ expectations of a 3% rate of growth. The markets responded
positively to the news, while the media said it is a sign that the economy “may
be picking up speed” (NYTimes) and is displaying “steady, solid growth” (LATimes).
What This Means For Small Business:
Any
strong GDP numbers are welcome by the business community as a whole. However,
delving into the numbers, the data isn’t as positive for the small business
community. The growth for the quarter was driven by a host of unique factors.
For example, military spending, which can vary wildly from quarter-to-quarter,
rose 16 percent, driving an overall 4.6 percent rise in government outlays. In
addition, the trade deficit narrowed to $410 billion from $460 billion during
the quarter on a drop in imports. That factor alone added 1.3 percentage points
to the GDP.
The most
important part of the equation for small business is consumer spending, which
lagged the topline number. Consumer spending rose at a 1.8 percent annual rate
in the 3rd quarter, down from a 2.5 percent rate in the 2nd quarter and below
economists’ expectations of a 1.9 percent growth rate.
What This Means Going Forward:
Economists expect the economy to grow at a 3 percent rate during the current
quarter. In order to maintain momentum, consumer spending is going to have to
accelerate. However, early signals on that front are positive – consumers
expect to spend more on the holiday this year than last, consumer confidence is
rising, gas prices are falling, and the labor market is improving.
Additional Reading:
Among the many
sources reporting on the GDP numbers are the New York
Times, Bloomberg
News, the Wall Street
Journal and
the Los
Angeles Times.
This news article is intended to keep small business owners apprised of current events that may affect them. It does not necessarily reflect NFIB’s policy position on such issues.
