[Jason_Lim]

Real GDP increased 3.5% in Q3 09, above the consensus estimate of 3.2%. The improvement in activity was widespread across sectors, and the report is consistent with the view that the pace of the recovery will accelerate further over the next two quarters.

Real consumer spending rose at a 3.4% pace in Q3 09. This figure was helped by the Cash-for-Clunkers effect on motor vehicle sales, but all three major components of consumer spending, durable goods (22.3%), nondurables (2.0%), and services (1.2%) showed improvement. In addition, residential investment spending gained 23.3%, ending a streak of 14 consecutive quarterly declines, while equipment and software spending climbed 1.1%, following six straight quarterly declines. Nonresidential structures investment fell 9.0%, the only major category of final sales to decrease. Government spending increased 2.3%, as a 7.9% rise in federal spending more than offset a 1.1% drop in state and local spending. Inventories contributed 0.94pp to growth, as the pace of liquidation eased; however, inventories still fell by $130.8bn, so there is much growth from this source to come as production catches up to sales. Net exports subtracted 0.53pp from growth, as a rebound in import growth (16.4%) more than offset an improvement in export growth (14.7%).

On the inflation front, the GDP price index rose an annualized 0.8% in Q3 09 and was up 0.7% y/y. The core PCE price index increased an annualized 1.4% on the quarter, and was up 1.3% y/y.