October 30, 2014
GDP grew at a higher than expected 3.5 percent annual rate in the third quarter. The biggest factors in this growth were a 16.0 percent increase in defense spending, which added 0.66 percentage points to growth; an 11.0 percent increase in the export of goods, which added 0.99 percentage points to growth; and a 2.4 percent decrease in the import of goods, which added 0.34 percentage points to growth. In other categories, consumption grew at a modest 1.8 percent annual rate, while non-residential investment grew at a 5.5 percent rate.
The jump in defense spending is likely an anomaly which will be reversed in future quarters. Defense spending is always erratic and big movements are usually reversed in later quarters. The trade data are encouraging, but may be reversed as the dollar has strengthened in recent weeks, making U.S. goods less competitive.
One piece of good news in the report is that the slowdown in health care spending is continuing. Nominal spending in the third quarter is just 3.5 percent above the year-ago level. It is difficult to determine the extent to which this slowdown can be attributed to the ACA, but clearly the predictions that costs would explode due to the extension of coverage have proven wrong.
