The U.S. Dept. of Commerce’s Bureau of Economic Analysis announced today that it has revised upward its estimate for third quarter gross domestic product growth. The agency had estimated 3.9% last month, but now it has increased its estimate to 5%.

GDP grows the fastest in 11 years

The increase means the United States’ GDP grew at the fastest rate in more than a decade during the September quarter. It also means the GDP’s growth rate beat the consensus estimate of economists, which was 4.3%, reports Business Insider.

The agency cited “positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment” as reasons for the upward revision. The bureau also noted that imports decreased during the quarter, which is important because imports are calculated as a subtraction in the GDP.

Firms weigh in on GDP growth rate revision

In a research note dated Dec. 23, 2014, Sterne Agee Chief Economist Lindsey Piegza wrote, “In a word, wow!” Piegza also noted that as usual, the economic data has sent mixed messages, as headline growth was better than previously expected. The economist also said the bureau’s revisions “were reflective of a stronger consumer, and more business investment.

“Although, it isn’t all roses, with the latest durable report suggesting businesses are reigning in spending in the final months of the year after back-to-back quarters of impressive investment, and strong inventory building,” she wrote.

She noted that orders for durable goods declined .7% last month after a .3% increase in October, which disappointed economists. The agency revised consumption upward from 2.2% to 3.2% in the third quarter, reporting a 4.7% increase in goods consumption, which reflected a 9% rise in consumption of durable goods. Service consumption was also revised upward from 1.2% to 2.5%.

From various perspectives

Piegza also said the new data does demonstrate to the Fed that the U.S. economy continues to show signs of recovery. When paired with the 4.6% GDP growth of the second quarter, she notes that the U.S. economy grew at an average of 4.8% in the six months between April and September. However, she doesn’t think the data will change the Fed’s current monetary policy path.

“After all, coupled with weakness at the start of the year and an expectation of waning momentum in Q4, the annual growth rate for 2014 is poised to be circa 2%, on par with activity levels seen over the past few years,” the analyst wrote.

Breaking down the GDP report

Officials revised upward private investments from 5.1% to 7.2%. Piegza noted, however, that this impressive upward revision rate is still less than half the 19.1% growth rate from the previous quarter. Exports were revised down to a 4.5% gain after the 11.1% gain in the previous quarter.

Imports were pushed lower to a .9% decline from the previous estimate of a .8% decline. Officials raised inventories past $80 billion for the second quarter in a row. Also government spending rose a bit to a 4.4% increase due to a 16% increase in defense spending.

Here’s a look at the full breakdown of how the GDP numbers have looked since 2008. Graph is courtesy Sterne Agee.

GDP

GDP-2

Wall Street sentiment on the rise

Investors responded with excitement to this morning’s GDP news, adding to record gains today, reports CNBC. The Dow Jones Industrial Average climbed .43% or 77.22 points, passing 18,036.66. Of the 30 components in the Dow, 24 of them climbed.

The S&P 500 also hit a new intraday high, rising as much as 2% or 4.57 points to hit 2,083.11. Among the ten main sectors of the index, the financial sector led the gains, while healthcare was the only laggard. The NASDAQ erased its earlier gains, however, sliding as much as 7 points or .15% to hit 4774.36.

According to CNBC, about two shares rose for every share that declined on the New York Stock Exchange.