Evening Brief – 10.26.23
US GDP Soars in Q3, But…
The Bureau of Economic Analysis (BEA) reported that the US GDP increased to 4.9% in the third quarter, more than doubling from 2.1% in the second quarter and reaching its highest level since the second quarter of 2021.
GDP was also significantly higher than the estimate of 4.5%, though not quite as high as the 5.5% circulated by some analysts. The surge was fueled by a sharp rebound in personal consumption, which increased to 4% annualized from 0.8% in the second quarter; investment was also up 8.4% and government expenditure was up 4.6%.
According to the BEA, “compared to the second quarter, the acceleration in GDP in the third quarter primarily reflected accelerations in consumer spending, inventory investment, and federal government spending and upturns in exports and housing investment. These movements were partly offset by a downturn in business investment and a deceleration in state and local government spending. Imports turned up.”
Upon closer inspection, the increase in consumer spending was attributable to increases in both services and goods. The leading contributors within services were housing and utilities, health care, financial services and insurance, and food services and lodging.
Other nondurable goods, as well as recreational goods and vehicles, were the biggest contributors to the growth in goods. The rise in inventory investment was driven mostly by growth in manufacturing and retail trade.
Housing contributed 0.15% to GDP after being a drag for more than two years. The recent rise in mortgage rates, however, suggests that the rebound in home investment may be fleeting.
Investment spending was especially strong, contributing 1.47% to growth, the highest contribution since late 2021. The majority of this is a growth in inventories, which is not always a sign of strength.
Separately, household savings have played an important role in the recession discussion. Personal savings were $776.9 billion in the third quarter, down from $1.04 trillion in the second quarter, according to data.
The overall data was hotter than predicted. The price index came in at 3.5%, up from 2.7% projected, but core PCE (ex-food and energy) increased 2.4%, a steep drop from 3.7% in the second quarter and below the 2.5% expected. The reading was the lowest since the end of 2020 and likely contributed to the retreat in bond yields.
Moving forward, it may be difficult to see an encore performance. “While this number is unsurprising, our expectations are for slower GDP going forward as positive contributions from volatile net exports and inventories are unlikely to be repeated,” said Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management.