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Economy in Brief

U.S. GDP Growth and Price Gains Ease
by Tom Moeller  October 26, 2018

Real gross domestic product increased 3.5% (AR, 3.0% y/y) during Q3'18 following a 4.2% rise in the second quarter. A 3.3% advance had been expected in the Action Economics Forecast Survey.

Supporting economic growth last quarter was accumulation of inventories which added 2.1 percentage points. That followed a 1.2 percentage point subtraction in Q2. Countering the addition was a 1.8 percentage point subtraction from growth due to deterioration in the foreign trade deficit which followed a 1.2 percentage point Q2 addition. Exports declined 3.5% (+3.9 y/y) after a 9.3% rise while imports strengthened 9.1% (5.7% y/y) following a 0.6% dip.

Growth in domestic final sales eased to 3.1% (3.3% y/y) after a 4.0% Q2 gain. Growth in personal consumption expenditures, however, was fairly steady at 4.0% (3.0% y/y). Spending on goods also was stable and strong at 5.8% (4.3% y/y). Spending on durable goods grew a lessened 6.9% (6.4% y/y) as recreational goods & vehicle purchases surged 12.4% (10.2% y/y). Spending on home furnishings & appliances advanced an accelerated 7.4% (6.7% y/y) while growth in motor vehicle & parts buying slowed to 3.8% (3.0% y/y). Spending growth on nondurable goods accelerated to 5.2% (3.3% y/y), the quickest rate of growth in over five years. It was bolstered by an 11.7% surge (5.4% y/y) in clothing purchases, as food & beverage spending advanced 4.0% (3.7% y/y). Spending on gasoline & other energy products fell 2.8% (-0.8% y/y). Services purchases advanced 3.2% (2.5% y/y), the quickest rate of growth since Q4'14. It was bolstered by a 6.9% rise (4.2% y/y) in spending at restaurants and a 4.6% increase (2.6% y/y) in spending on health care. Spending on housing & utilities grew a lessened 1.8% (1.7% y/y).

Holding back the rise in final sales was a modest 0.8% gain (6.4% y/y) in capital spending which followed two years of strong growth. The rise was restrained by a 7.9% drop (+5.1% y/y) in structures outlays, the first decline in a year. Equipment outlays rose slightly (5.8% y/y), though industrial equipment purchases surged 10.2% (4.7% y/y) after a 3.1% decline. Investment in information processing equipment advanced a weakened 3.5% (8.7% y/y) while transportation equipment outlays declined 9.1% (+3.8% y/y). Outlays on intellectual property products strengthened 7.9% (8.2% y/y), fueled by a 50.0% surge in software investment.

Weakening by 4.0% (+0.4% y/y) was residential investment, down for the third straight quarter.

Government spending grew a strengthened 3.3% (2.4% y/y), the quickest advance since Q1'16. Federal government outlays increased a steady 3.3% as defense outlays surged 4.7% (4.1% y/y). State & local government expenditures rose 3.2% (1.8% y/y), the strongest growth in over two years.

Growth in prices eased considerably last quarter. The GDP chain price index advanced 1.7% (2.3% y/y), the weakest rise in over a year. A 2.1% increase had been expected. Growth in the PCE price index eased to 1.6% (2.2% y/y), the slowest growth rate in a year. The goods price index declined 0.4% (+0.9% y/y) while the services price series gained 2.5% (2.8% y/y). The price index for business fixed investment improved 1.5% (1.2% y/y) after a 2.0% rise, but the residential price index strengthened 4.0% (5.8% y/y). The price index for the government sector improved 2.0 (2.8% y/y), the weakest rise in over a year.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

The Outlook for the U.S. Economy and Monetary Policy from Fed Vice Chairman Richard H. Clarida is available here.

Chained 2012 $ (%, AR) Q3'18 (Advance Estimate) Q2'18 Q1'18 Q3'18 Y/Y 2017 2016 2015
Gross Domestic Product 3.5 4.2 2.2 3.0 2.2 1.6 2.9
  Inventory Effect 2.1 -1.2 0.3 -0.2 0.0 -0.5 0.3
Final Sales 1.4 5.4 1.9 3.0 2.2 2.1 2.6
  Foreign Trade Effect -1.8 1.2 0.0 0.2 -0.3 -0.3 -0.8
Domestic Final Sales 3.1 4.0 1.9 3.3 2.5 2.3 3.3
Demand Components
  Personal Consumption Expenditure 4.0 3.8 0.5 3.0 2.5 2.7 3.7
  Nonresidential Business Fixed Investment 0.8 8.7 11.5 6.4 5.3 0.5 1.8
  Residential Investment -4.0 -1.4 -3.4 0.4 3.3 6.5 10.1
  Government Spending 3.3 2.5 1.5 2.4 -0.1 1.4 1.9
Chain-Type Price Index
   GDP 1.7 3.0 2.0 2.3 1.9 1.1 1.0
    Personal Consumption Expenditures 1.6 2.0 2.5 2.2 1.8 1.1 0.3
    Nonresidential Investment 1.5 2.0 0.7 1.2 0.7 -0.8 0.5
    Residential Investment 4.0 7.3 8.8 5.8 4.5 3.6 2.7
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