U.S. GDP Growth Is Reduced by Inventory Decumulation

The economy grew 1.5% (AR) last quarter following a 3.9% Q2 increase. The shedding of inventories sapped 1.4 percentage points from growth, reversing modest accumulation during the prior six months. Inventory decumulation came as final demand growth eased to 3.0% from a 3.9% advance in Q2. A 1.7% rise in GDP had been expected in the Action Economics Forecast Survey. Lack of pricing power provided incentive to limit inventory accumulation. The GDP chain price index rose 1.2%, down from 2.1% in Q2.

The slowdown in final demand growth reflected weaker growth across sectors. While still firm, consumer spending grew 3.2% following a 3.6% rise as durable goods purchases rose an easier 6.7%. Motor vehicle consumption growth nearly halved to 5.1% (3.9% y/y) but spending on home furnishings & appliances picked up to 7.4% (5.8% y/y). Nondurable spending gained 3.5% (2.9% y/y) versus a 4.3% Q2 rise. Apparel purchases grew 2.2% (3.7% y/y), down from 6.6% and food & beverage buying eased 0.1% (+0.3% y/y). Services spending held steady at 2.6% (2.9% y/y). That reflected quicker growth of 4.0% (4.7% y/y) in health care and a 2.3% decline (+0.9% y/y) in recreation.

Business fixed investment grew 2.1%, half the Q2 rise. Spending on structures declined 4.0% (-0.4% y/y), the second negative reading in three quarters. Equipment spending, however, picked up to 5.3% (0.7% y/y), its strongest gain in a year. Information processing equipment jumped 17.1% (6.5% y/y) and transportation equipment rose 13.2% (2.7% y/y). Intellectual property products improved a reduced 1.8% (6.1% y/y) but industrial equipment declined 4.6% (+2.2% y/y). Residential investment grew 6.1%, down moderately from 9.4%.

Government spending growth of 1.7% (0.7% y/y) reflected a 2.6% rise (1.9% y/y) in state & local and a 0.3% uptick (-1.1% y/y) in federal purchases. Defense spending declined 1.4% (-2.7% y/y) but nondefense spending grew 2.8% (1.4% y/y).

A slightly negative effect on GDP growth from the foreign trade sector reflected a 1.9% advance (1.5% y/y) in exports which followed a 5.1% jump. Last quarter's increase was offset, however, by a 1.8% rise in imports (5.5% y/y) after three straight quarters of stronger gains.

The GDP price index increased 1.2% (0.9% y/y) after a 2.1% rise. The PCE price index rose 1.2% (0.3% y/y), bolstered by a 1.9% gain (1.8% y/y) in services prices. Goods prices fell 0.2% (-2.9% y/y) led by a 2.2% drop (-2.1% y/y) in durables. The business investment price index rebounded 1.0% but was unchanged y/y. The residential price index improved 3.4% (1.7% y/y).

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