The latest report from the Bureau of Economic Analysis reveals that the U.S. economy displayed robust growth in the third quarter of 2023, surpassing initial estimates and posting the strongest expansion since the fourth quarter of 2021.

The second estimate indicates that the annualized GDP growth rate for Q3 2023 stood at 5.2%, outpacing the preliminary figure of 5%.

Key Revisions To Q3 GDP

One of the notable revisions in this report was in nonresidential investment, which was originally estimated to have fallen by 0.1%. However, it was updated to show a surprising 1.3% increase.

This upward revision can be attributed to a smaller decline in equipment (-3.5% compared to the initial estimate of -3.8%) and a remarkable surge of 6.9% in structures (versus the initial estimate of 1.6%), led by commercial and health care (mainly warehouses).

Furthermore, the residential investment sector exhibited stronger signs of growth. It recorded a growth rate of 6.2%, significantly higher than the initially anticipated 3.9%, marking its first positive growth in nearly two years.

Private inventories also made a significant contribution to the overall growth, adding 1.4 percentage points to the GDP, surpassing the previous estimate of 1.32 percentage points. Government spending experienced faster growth as well, expanding by 5.5% compared to the earlier estimate of 4.6%.

Consumer spending, although slightly lower than the preliminary estimate (3.6% versus 4%), still posted its most substantial gain since Q4 2021. The moderation in consumer spending was primarily attributed to a slowdown in services spending. Exports surged by 6%, albeit slightly below the initial estimate of 6.2%, while imports increased at a slower rate, growing by 5.2% compared to the initial estimate of 5.7%.

The acceleration in GDP for Q3 2023, when compared to the previous quarter, can be attributed to increased consumer spending, private inventory investment, and a notable uptick in exports.

Market Reactions: Dollar Sees Some Respite, Treasury Yields Stay Flat

The U.S. dollar index (DXY), tracked by Invesco DB USD Index Bullish Fund (NYSE:UUP), reacted positively to the upward revision in GDP figures.

However, the dollar index remains below the 103 level, which was last seen in mid-August.

Treasury yields were relatively stable, with the yield on a 10-year U.S. Treasury bond, tracked by the US 10 Year Treasury Note ETF (NYSE:UTEN), trading at 4.30% on Wednesday.

According to CME Group's Fed Watch Tool, market participants currently assign a 77% chance of a Fed rate cut occurring as early as May 2024, and they are currently factoring in five rate cuts by December 2024 at a 52% probability.

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