Here's The Main Driver Of Today's GDP Surprise

USS Eisenhower

Photo: Robert Johnson — BI Military & defence

Today’s Q3 GDP release beat expectations – the economy grew 2.0 per cent in the third quarter, according to this first reading, while economists expected a 1.8 per cent gain.The main reason the report cited for the acceleration in Q3 GDP growth from Q2’s 1.3 per cent rate was “an upturn in federal  government spending,” which was a positive contribution to GDP since the third quarter of 2010.

And the primary driver of the spending increase came from investments in national defence.

In fact, defence spending amounted to 0.64 percentage points of the 2.0 per cent rise in GDP – or 32 per cent of the economic growth in the third quarter (click to enlarge):

GDP defence spending

Photo: BEA

So, if you stripped out defence spending, the economy grew closer to a 1.36 per cent rate in Q3, closer to Q2’s final estimate of 1.3 per cent.

From the release:

Real federal government consumption expenditures and gross investment increased 9.6 per cent in the third quarter, in contrast to a decrease of 0.2 per cent in the second. National defence increased 13.0 per cent, in contrast to a decrease of 0.2 per cent. Nondefense increased 3.0 per cent, in contrast to a decrease of 0.4 per cent. Real state and local government consumption expenditures and gross investment decreased 0.1 per cent, compared with a decrease of 1.0 per cent.

Here’s a table from the report, showing the rise in government – and especially defence – spending (click to enlarge):

Q3 GDP defence spending

Photo: BEA

Click here for the full release >

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