Real gross domestic product (GDP) expanded 2.9% on a seasonally adjusted annualized rate during the third quarter of 2016, according to an Associated Builders and Contractors (ABC) analysis of Bureau of Economic Analysis data. This follows a 1.4% increase during the second quarter and represents the tenth consecutive quarter of economic expansion.
Nonresidential fixed investment, a category closely aligned with construction and other forms of business investment, expanded at a 1.2% annualized rate during the third quarter after growing 1% during the second. Investment in structures led the way, increasing by 5.4% in the third quarter after falling 2.1% during the second. Investment in equipment fell 2.7% for the quarter, while investment in intellectual property products expanded 4%. Residential investment continued to fall, declining 6.2% in the third quarter after falling 7.7% during the second.
“Today’s GDP release will generally be viewed favorably both for the construction industry and for the larger economy,” said ABC Chief Economist Anirban Basu. “The acceleration in real GDP growth was driven by a combination of factors, including an upturn in exports, a smaller decrease in state and local government spending and an upturn in federal government spending. One of the biggest impacts came from greater private inventory investment, likely in response to expectations for reasonably strong consumer spending. Growth in personal consumption expenditures was responsible for almost half of third quarter GDP growth. However, this build in inventories is likely to subtract from economic growth in future quarters, though not massively.
“According to the most recent data available from the Bureau of Economic Analysis, nonresidential investment in structures has contributed little to GDP over the past five quarters,” said Basu. “While there are certain categories of nonresidential construction that have been active in terms of spending growth, including the office, lodging and commercial categories, for the most part spending growth has been lackluster.
“Third quarter growth was solid, but future quarters may not be as good,” said Basu. “The economy will have to deal with a number of headwinds going forward, including a stronger dollar, building inflationary pressures and higher interest rates. Consumer spending growth will continue to lead the recovery. While this will help support construction spending in certain categories, including distribution centers, nonresidential investment in structures is likely to expand only slowly in early 2017.”
The following highlights emerged from today’s third quarter GDP release. All growth figures are presented as seasonally adjusted annualized rates:
- Personal consumption expenditures expanded 2.1% on an annualized basis during the third quarter of 2016 after growing 4.3% during the second quarter of 2016.
- Spending on goods rose 2.2% during the third quarter after expanding by 7.1% during the previous quarter.
- Real final sales of domestically produced output increased 2.3% in the third quarter after increasing 2.6% in the second.
- Federal government spending expanded 2.5% in the year’s third quarter after contracting during each of the prior two quarters.
- Nondefense government spending increased 3% during the quarter following an increase of 3.8% during the second.
- National defense spending grew by 2.1% during the third quarter after registering a 3.2% decline in the previous quarter.
- State and local government spending fell by 0.7% in the third quarter after falling 2.5% in the second quarter.
