Economy Grew at a 3.4% Pace Last Quarter, With Imported Computers Swelling Investment

The economy picked up speed over the summer, and a large share of the push came from businesses buying computers. Inflation-adjusted output rose at a 3.4 percent annual pace from July through September, the Bureau of Economic Analysis said Thursday in its first estimate for the period. That compares with 2.2 percent in the spring quarter. Measured over three months instead of a full year, the gain was 0.8 percent.

Exports fell, mostly on weaker shipments of petroleum and related products, and imports rose faster than in the spring, yet consumers, businesses and government each still added to growth.

The investment numbers matter most for anyone watching the artificial intelligence boom. By the agency's count, computers and related hardware drove the rise in equipment spending, and much of that estimate was built from import records. Companies adding to their stockpiles gave investment its other big lift.

That detail matters because of how the books work. Gross domestic product is meant to count only what is produced inside the country. When a company buys a rack of servers made overseas, the purchase lands in investment and the same dollars come back out on the import line, which is subtracted. Capital goods other than vehicles made up the biggest share of the quarter's import growth, the agency said. Equipment bought abroad can therefore swell the investment line while leaving net output unchanged.

Fed Chairman Kevin Warsh described the same trend a day before the release. Speaking after the central bank held its benchmark rate steady, he said business investment appeared to be climbing at roughly a double-digit pace, with high-tech spending in the lead, and that capital outlays are taking up an unusually high share of the economy.

Trade figures released Wednesday by the Census Bureau show how much is coming in from abroad. The goods deficit widened to $134.9 billion in September, compared with $132.1 billion a month earlier. Imports of goods rose $8.1 billion to $344.1 billion, outpacing a $5.3 billion rise in exports, which reached $209.2 billion. Wholesale inventories ended September 7.4 percent above their level a year earlier.

A narrower gauge that leaves out trade, government and inventories tells a stronger story about demand at home. Final sales to private domestic buyers, which combine consumer spending with private fixed investment, grew at a 4.9 percent rate after adjusting for inflation, faster than the 4.6 percent pace of the spring. Because that measure ignores imports, it counts the full price of every imported server as American demand.

Prescription drugs did the most to lift household purchases of goods, falling in a group the agency calls other nondurables. Spending on services also grew. The largest piece there was medical care at hospitals and outpatient clinics, with restaurant meals next.

A smaller drawdown from the Strategic Petroleum Reserve made federal nondefense spending look higher than in the spring, an accounting effect the agency said does not change total GDP.

Price pressures inside the report eased from the April through June period. Prices for personal consumption expenditures rose at a 2.1 percent annual rate, down from 5 percent, and 2.5 percent when food and energy are excluded, down from 3.3 percent. Prices paid by domestic buyers overall rose at a 3 percent rate after a 5.6 percent spring increase. Before adjusting for inflation, output grew at a 5.6 percent pace.

The central bank's statement this week called economic activity strong, and the committee left its rate range at 3.75 to 4 percent, with two members voting for an increase.

The agency plans to publish its second estimate for the quarter on Nov. 25, along with figures on corporate profits.