 | Q3 Real GDP up at a 2.5% annual rate |
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| Posted Under: Data Watch • GDP |
Implications: Real GDP growth came in exactly as the consensus expected, but the make-up of Q3 data bodes well for the end of the year and beyond. The weakest part of today's report was inventories, which were a drag of 1.1 points on the real GDP growth rate. Inventories are at rock bottom levels. Any boost will add to GDP in the months and quarters ahead. If we exclude inventories, final sales grew at a robust 3.6% rate. This drag from inventories is not new. In the past four quarters, while overall real GDP has grown 1.6%, final sales (which exclude inventories) have grown a much more respectable 2.4%. Private final sales, which excludes the government, shows a strong underlying growth trend: up at a 4.4% annual rate in Q3 and up 3.5% from a year ago. Business investment grew at a 16.3% rate in Q3, the fastest pace so far this year. In other words, consumer and business spending is growing much faster than those who watch consumer and business confidence data think it will, or should. Even home building was up slightly, for the third time in the past four quarters. Nominal GDP (real growth plus inflation) grew at a 5% annual rate in Q3 and is up at a 4.5% rate in the past two years. The Federal Reserve cannot possibly justify another round of Quantitative Easing based on the growth rate of nominal GDP, nor should it continue to hold short-term interest rates near zero. In other news this morning, new claims for unemployment insurance dipped 2,000 last week to 402,000. Continuing claims for regular state benefits fell 96,000 to 3.65 million, the lowest since September 2008. On the housing front, pending home sales, which are contracts on existing homes, declined 4.6% in September, suggesting a slight dip in existing home sales in October.
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