Trade Bolsters Q3 Advance GDP

The Bureau of Economic Analysis (“BEA”) today (10/30/2014) announced that the U.S. economy expanded at a 3.5 percent annual rate in the third quarter of 2014. This “advance” estimate represents a moderate reduction from the 4.6 percent increase logged in the second quarter. Growth was broad based, with expansions in all major expenditure components (i.e., personal consumption expenditures, non-residential fixed investment, government spending, and net exports). The lower growth rate in the headline “real” GDP figure was caused by falling private inventories. Real final sales of domestic product, a measure which excludes inventories, expanded by 4.2 percent in the third quarter versus 3.2 percent in the second quarter.

Changes in trade flows were prominent in supporting growth, according to the “advance” estimate. Real exports of goods and services expanded by 7.8 percent and contributed 1.03 percentage points to third quarter growth. Real imports declined by 1.7 percent, which contributed 0.29 percent to GDP growth. Thus, trade contributed 1.32 percentage points to the third quarter’s GDP expansion of 3.5 percent. As the figure below shows, trade has been a positive contributor to real GDP in two out of the last four quarters. For imports, negative value indicates that imports increased, which subtracts from GDP. In contrast, a positive value for imports, as in 2014Q3, indicates that real imports declined, which adds to GDP.

Source: Bureau of Economic Analysis, National Income and Product Accounts–Gross Domestic Product, Third Quarter 2014 (Advance Estimate), Table 3.

Trade’s contribution will likely change when BEA issues its second estimate of third-quarter GDP on November 25th. The “advance” estimate is based on only two months of trade data. The next release will incorporate data from September, the final month of the third quarter.