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Economy in Brief

US 3Q GDP Grew 3.8%
by Tom Moeller October 28, 2005

US real GDP grew 3.8% (AR) last quarter and slightly beat Consensus expectations for 3.6% growth. That strength versus 3.3% growth during 2Q '05 came despite an unspecified subtraction (perhaps 0.2 percentage points) due to Hurricanes and the Boeing strike.

Domestic demand growth remained firm at 4.1% due to 3.9% (3.8% y/y) growth in real PCE which was powered by a 17.6% (4.6% y/y) jump in motor vehicle purchases. Spending on furniture & household appliances also jumped 12.1% (9.0% y/y) and services spending rose 3.2%. (3.0% y/y).

Investment spending remained strong. Business fixed investment rose 6.2% (7.8% y/y) due to an 8.9% (10.1% y/y) gain in equipment & software. Structures spending fell 1.4% (+1.0% y/y). Residential investment continued higher yet the 4.8% (6.6% y/y) increase lagged the 10.8% growth during 2Q.

Inventory accumulation continued to have a negative effect on GDP growth. The 0.6 percentage point subtraction was lower than during 2Q but it was the fourth subtraction in the last five quarters.

A shallower foreign trade deficit added marginally to GDP growth following the 1.1 percentage point add during 2Q. Exports continued higher although the 0.7% (6.5% y/y) rise was well off the pace of the prior two years during which quarterly export growth averaged 7.7%.Imports fell slightly (+4.5% y/y) for the second consecutive quarter.

The chain price index rose 3.1%, elevated from 2Q due to the surge in energy prices. Less food & energy the GDP chain price index rose 2.5%, the same as during the prior two years. The chain price index for domestic final demand rose 4.0% after an elevated 3.3% gain in 2Q yet less food & energy the 2.2% gain was a hair below the 2.5% averaged during the prior two years.

Chained 2000$, % AR 3Q '05 (Advance) 2Q '05 Y/Y 2004 2003 2002
GDP 3.8% 3.3% 3.6% 4.2% 2.7% 1.6%
  Inventory Effect -0.6% -2.1% -0.6% 0.3% 0.0% 0.4%
Final Sales 4.4% 5.6% 4.2% 3.9% 2.7% 1.2%
  Foreign Trade Effect 0.1% 1.1% 0.2% -0.5% -0.3% -0.6%
Domestic Final Demand 4.1% 4.2% 4.0% 4.4% 3.0% 1.8%
Chained GDP Price Index 3.1% 2.6% 2.9% 2.6% 2.0% 1.7%
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