This week the U.S. Bureau of Economic Analysis reported that the U.S. economy grew at an annualized rate of 2.8% last quarter. This was the most since the third quarter of 2012. What was behind this increase in the size of the economy?
There are four major components to the economy; Personal Consumption, Gross Private Domestic Investment, Net Exports and Government Consumption. Each can be further broken down into sub-components.
Personal consumption can be broken down into services and goods. The contribution to economic growth by goods has been fairly steady over the past few years. The contribution by services, however has been uneven and hardly added anything last quarter.
Gross private domestic investment can be split into two components, change in private inventories and fixed investments. Over the past two years the combined contributions have been between 1.0% and 1.5%, but each have not contributed evenly.
Net exports can be subdivided into exports and imports. Exports have been adding to the growth in the size of the economy over the past few quarters, while imports have primarily subtracted from growth over the past four years.
Government consumption can be broken into federal and state/local components. Last quarter state/local consumption added to growth while federal consumption detracted. Not since 2010 have both federal and state/local government consumption both added to U.S. economic growth.
Though it gets a bit messy, combining all of these sub-components illustrates that last quarter, U.S. economic growth was primarily driven by exports, changes in private inventories, fixed investments and personal consumption of goods. This was not all that dissimilar than the growth in Q3 2012 EXCEPT that it was federal government spending adding significantly in Q3 2012, instead of exports.
More robust economic growth, however needs greater fixed investment and personal consumption of goods and services than has been experienced over the last two years.
Date Source: U.S. Bureau of Economic Analysis