When the markets got their first look at third-quarter gross domestic product (GDP) on Friday, you might have thought the reaction would be extremely positive right off the bat. The U.S. Department of Commerce’s Bureau of Economic Analysts (BEA) reported that the third-quarter preliminary GDP was up at 2.9%.

That was much higher than the 2.5% expected by Bloomberg, Dow Jones and Thomson Reuters. It was also the best reading since the third quarter of 2014, and it finally got things moving back toward the 2.0% growth rate for an annual basis.

However, several things acted as a drag on the underlying GDP. Because the headline 2.9% gain was so strong, we have to consider it a net win — but we also have to be realistic about what sort of issues drove the bump here. And keep in mind that there will be two more revisions to this data.

Exports skewed the data, led by agriculture (particularly soybeans), and total trade of imports versus exports was a net add of 0.83 points in the third quarter.

Businesses raised inventory levels ahead of the fourth quarter. Some may have been involuntary inventory raises. Private sector inventories added 0.61 points to the GDP growth.

Price inflation was more or less in line with estimates. As a reminder, the Federal Reserve wants to see inflation running in the 2.0% to 2.5% range in order to justify a rate hike. The GDP price index rose by 1.4% on a seasonally adjusted basis. Bloomberg was calling for 1.5% on the price index, while Thomson Reuters called for 1.4% and Dow Jones (WSJ) was looking for 1.3%.

It is important to understand that GDP is roughly two-thirds driven by consumer spending activity, which was not so strong. The personal consumption expenditures rate rose by 2.1% in the third quarter, compared with 4.3% in the second quarter.

Real final sales, which excludes inventory effects, saw a gain of 2.3% in the third quarter. The second quarter’s growth was actually 2.6%.

Business investment looks up, but only marginally. Nonresidential fixed investment rose by 1.2% in the third quarter. That compared to a 1.0% gain in the second quarter.

The first look at residential fixed investment was down at −6.2%, marking the second drop in a row.

Also driving the headline GDP gain was government spending. This was up 0.5% in the third quarter, and stronger federal spending offset a decline in state and local government spending.

The stock and bond market gave some mixed initial reactions to the GDP headlines. This number should still support a Federal Reserve rate hike ambition in December, but we still have another 45 days or so before that matters — and we have to see what the post-election reaction looks like as well.

Again, the gain in GDP has to be considered a win. The history books count the real numbers rather than all the internal factors of gains and losses. Still, this 2.9% growth was handily higher than the Atlanta Fed’s GDPNow reading of 2.1%, and there were many issues that might not be very permanent in these numbers.

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