Nation’s GDP grows 4.1 percent in third quarter

President Obama praised the budget deal put forward by Sen. Patty Murray and Rep. Paul Ryan during his end-of-year news conference Friday and said he won't negotiate with the GOP on raising the debt ceiling. (The Associated Press)
December 20, 2013

The U.S. economy expanded at a surprisingly strong pace this fall despite the federal government shutdown, according to new data released Friday.

The Commerce Department reported that the nation’s gross domestic product grew at a 4.1 percent annual rate during the third quarter — the best showing since 1992. Although much of the increase came from a buildup in business inventory, the data also showed improvements in consumer spending and exports that lifted many economists’ outlook for the final months of the year.

The report represents the government’s final tally of the country’s economic output during the third quarter. It is significantly stronger than the initial estimate of a 2.8 percent annual growth rate.

“The underlying details are better,” said Richard Moody, chief economist for Regions Financial. “It’s a broader platform under growth.”

The data bolster the rosier portrait of the recovery that has taken hold since the federal government shutdown ended in October. The partisan gridlock in Washington did not stop businesses from hiring or prevent consumers from pulling out their wallets. Now, with a federal budget in place through 2015 that rolls back some of the most severe government spending cuts, many economists believe the recovery is poised for takeoff.


The brighter outlook helped bolster the Federal Reserve’s confidence in the strength of the economy. Earlier this week, the central bank announced it would begin to scale back its stimulus efforts in January and continue the reductions through next year if growth continues apace.

Still, the Fed’s forecasts have proved overly optimistic in the past. Boston Fed President Eric S. Rosengren dissented from the central bank’s decision this week, arguing instead for patience.

“I am expecting the economy to pick up,” he said in an interview. But “before I wanted to pare back on what we were doing, I would prefer to wait until it was a little more strongly reflected in the data.”

Rosengren said he would like more evidence that the economy is on track to expand 3 percent next year. His current forecast is for a 2.8 percent growth rate, putting him slightly above the industry consensus.

Several details of the economy’s third-quarter performance raised hopes that the recovery has real momentum. Most notably, consumer spending rose by a solid 2 percent, compared with the previous estimate of 1.4 percent.

That signaled that businesses may be restocking merchandise to keep up with strong sales, pushing inventory levels up dramatically. Previously, economists worried that the increase in inventory was the result of unsold stock.

Although growth will almost certainly slow during the fourth quarter, many now think it will not be as weak as feared. Some economists had predicted the economy would expand less than 2 percent this quarter; now many estimates are above that mark.

“We’ve seen so many fits and starts in the economic data. . . . Just when you think you’re getting back on track, you get a run of bad data,” Moody said. “I don’t think we’ll fall into that trap.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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