WASHINGTON — Q3 GDP growth produced a surprisingly strong result, stemming from better consumption and exports, as well as showing an add from inventory building.

Q3 real GDP posted a 2.8% gain, far better than the expectation for about 2.1% growth. Real final sales were up 2.0%, showing momentum into the government shutdown.

Key ahead will be how much the more-than two-week government closing depresses Q4 real growth. The closing probably delayed some contracts, depressed individual spending for a time, and resulted in private firms cutting back. Most economists suggest the results could cut 1/4 to 1/2 point from Q4 real GDP growth.

But the Q3 GDP data suggest spending continued apace into September. Moreover, the government said despite the delay in compiling and releasing GDP data, they "were able to incorporate all of the major source data that would normally be available," suggesting no impact at all on the current computations.

The Commerce Department assumed a still-narrow trade gap and lower inventories for missing data in Q3. Prior GDP estimates in the recent past had a history of upward corrections to growth, and we suspect the Commerce Department might in part be compensating for this in being generous in the current report.

Personal consumption continued growing, at 1.5% and led by a 7.8% surge in durable goods as new unit auto sales remained high. Investment remained strong, led by residential and nonresidential structures. Intellectual property spending rebounded to a 2.2% rise from a 1.5% decline in Q2.

In a sequester effect, federal government spending was down 1.7% for Q3, showing retrenchment even before the closing. Furloughs reduced federal spending by about $5.5 billion at an annual rate, the report said.

But state and local government spending was up 1.5% as that sector continues to recover.

GDP prices posted a 1.9% increase, another modest result at about the middle of the recent range. The savings rate was 4.7%.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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