GDP boost will fade

Two cheers for third-quarter gross domestic product.

The Commerce Department on Thursday reported that GDP grew at an inflation-adjusted 2.6% annual rate in the third quarter from the previous quarter, bouncing back after declining during the first two quarters of the year, and better than the 2.3% gain economists polled by The Wall Street Journal were looking for. Moreover, even as consumer spending on goods slipped for a third consecutive quarter, spending on services remained robust—an indication of how the economy continues to transition back toward prepandemic patterns. Capital spending by businesses also kept growing.

But the housing crunch hit hard, with residential investment falling at a 26.4% annual rate, enough to cut about 1.4 percentage points from the GDP growth rate. The economic picture would look worse still if not for a decline in the trade deficit that bumped up growth by about 2.8 percentage points. Final sales of private domestic purchases—a measure of underlying demand that excludes the effects of swings in trade, inventory levels and government spending—grew at just a 0.1% annual rate. The private-demand figure grew at a 2.1% rate in the first quarter and 0.5% in the second, which helps underscore why, even though GDP contracted for two quarters in a row, the recession callers at the National Bureau of Economic Research weren’t about to declare a U.S. downturn.

None of this was unexpected. Even if economists didn’t nail the GDP growth figure, they got the contours of the report more-or-less right. Some thought private demand might contract, so the fact that it eked out a gain counts as a plus.