3Q2013 Gross Domestic Product: First (Advance) Estimate

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The Bureau of Economic Analysis (BEA) estimated 3Q2013 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +2.8 percent. All four categories -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made at least some contribution to 3Q growth. The headline rate was considerably above expectations of 2.3 percent, but that net improvement masked weakening contributions from consumer spending (0.20 percentage point lower than in 2Q), fixed investment (-0.33 percentage point) and exports (-0.44 percentage point). Those softening sectors were more than offset by growing contributions from inventories (+0.42 percentage point), state and local government spending (+0.11 percentage point) and sharply weakening imports (which added 0.80 percentage point to the headline).

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Consumer Metrics Institute (CMI) expanded on the last item, observing that:

• Exports contributed only 0.60 percentage point to the overall growth rate, down sharply from 2Q’s +1.04 percentage point.
• Also, imports were the largest single contributor to the reported improving growth -- by virtue of now subtracting only 0.30 percentage point from the headline number (compared to -1.10 percentage point during 2Q). This resulted primarily from weakening growth in demand for imported goods.

In addition, CMI noted that “the annualized growth rate for real final sales of domestic product decreased slightly to 2.01 percent (down from 2Q’s 2.07 percent). This is the BEA's ‘bottom line’ measurement of the economy -- which remains substantially weaker than the headline number because of the ongoing buildup of inventories.”

CMI concluded that “Given the anemic growth rates in real per capita disposable income [just 0.4 percent annualized], household savings rates well below recent comfort levels and the budgetary uncertainties resulting from the new healthcare mandates, it seems unlikely that those consumers [whose spending still represents over 68 percent of the U.S. economy] will go on any kind of spending spree anytime soon.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.