U.S. GDP Growth Boosted By More Inventory Accumulation

A rising level of inventories accompanied by modest final demand was the theme of last quarter's improved economic growth. Real GDP growth for Q3'13 was revised up to 3.6% (1.8% y/y) from 2.8%. Growth was the firmest since Q1'12 and outpaced consensus expectations for a 3.1% rise in the Action Economics survey.

After tax corporate profits, released for the first time, increased 2.8% (5.8% y/y). Before-tax earnings gained 1.8% (5.6% y/y), the increase driven by a 4.1% rise (1.8% y/y) in foreign sector earnings. Financial sector profits grew 1.9% (3.0% y/y) while nonfinancial sector earnings rose 1.1% (8.1% y/y). 

A faster rate of inventory accumulation continued to drive GDP growth last quarter. Inventories added 1.7 percentage points to the Q3 GDP increase, double the initial estimate. During the last year, however, inventories added a nominal 0.2 percentage points to GDP growth. Foreign trade deficit improvement also helped growth but by a lessened 0.1 percentage point. It was the result of a 3.7% rise (2.8% y/y) in exports which outpaced a 2.7% gain (1.7% y/y) in imports.

Domestic final sales rose at a 1.8% rate but the y/y rise of 1.4% was the weakest since Q1'10. A 1.4% gain (1.8% y/y) in personal consumption expenditures was its weakest since late-2009. Zero growth (0.8% y/y) in spending on services accounted for the slowdown. That was accompanied by a quicker 7.7% (7.5% y/y) increase in spending on durable goods. Nondurable goods spending rose at a 2.4% rate (1.8% y/y).

Business fixed investment increased at a quickened 3.5% rate and roughly equaled growth during the last year. Spending on nonresidential structures surged at a 13.7% rate (4.0% y/y) but equipment investment was unchanged (3.4% y/y). Growth in residential investment remained near its peak at 13.0% (14.8% y/y).

In the government sector, a 0.4% advance (-2.7% y/y) remained the first positive posting in a year. It reflected a 1.7% rise (-0.1% y/y) in state & local outlays offset by a 1.4% decline (-6.5% y/y) in federal spending. Nondefense federal spending fell at a 3.1% rate (-2.2% y/y) which roughly equaled the declines of the prior two quarters. Defense spending slipped at a 0.3% rate (-8.9% y/y).

The GDP price index rose at a little-changed 2.0% rate (1.3% y/y), the quickest quarterly growth in a year. Consumer prices increased at a 2.0% rate (1.1% y/y) while prices excluding food & energy rose at a 1.5% rate (1.2% y/y). The residential investment price index rose at a 3.2% rate (4.7% y/y) while the business fixed investment price index increased at a 1.0% pace (1.1% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the new integrated economics accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

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Orders to all manufacturers increased 1.5% (6.8% y/y) during June, following a 3.0% May jump. A 2.4% rise had been expected. The advance was led by a 3.9% jump (10.8% y/y) in durable goods bookings, little-revised from the advance report of a 4.2% rise. It reflected a one-third m/m jump (124.5% y/y) in orders for commercial aircraft & parts. Nondurable goods orders, which equal shipments, slipped 0.6% (+3.2% y/y) after a 0.8% May increase. Shipments from petroleum refineries slipped 0.7% (+4.9% y/y). Shipments of basic chemicals also slipped 0.8% (+2.7% y/y). The value of apparel shipments fell 1.4% (+3.3% y/y) but shipments of paper products ticked up 0.3% (-1.4% y/y).

The greater strength in new orders versus shipments again generated a rise in unfilled orders. Backlogs rose 2.1% during June and have risen 5.1% during the last twelve months. The rise has been led by a 8.0% y/y increase in transportation equipment, mostly for commercial aircraft. Excluding the transportation sector altogether, unfilled orders rose a slim 0.7% y/y. Backlogs of computers & electronic products jumped 4.4% y/y. Unfilled machinery orders fell 10.1% y/y but electrical equipment backlogs increased 1.4% y/y.

Inventories in the factory sector ticked up 0.1% in June (2.3% y/y) following little change during the prior three months. Apparel inventories rose 1.0% (13.0% y/y) but chemical inventories slipped 0.1% (+4.0% y/y). In the durable goods sector, inventories ticked up 0.1% (2.8% y/y). Transportation sector inventories gained 0.6% m/m (9.3% y/y) reflecting a 15.4% y/y jump in nondefense aircraft & parts. Electrical equipment & appliance inventories rose 1.8% y/y but machinery stockpiles declined 1.0% y/y.

The factory sector figures are available in Haver's USECON database. The expectation figure is in AS1REPNA.