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In
its first (“advance”) estimate of 3Q2015 U.S. gross domestic product (GDP), the
Bureau
of Economic Analysis (BEA) reported that the economy was growing at a 1.49%
seasonally adjusted and annualized rate, down 2.43 percentage points from 2Q. The
consensus
among economists was for a growth rate of +1.7%. A better metric involves comparing growth to the same quarter one year
ago. For 3Q2015, the year-over-year growth was 2.0% -- down from 2Q's 2.7% YoY
growth.
As
for groupings of GDP components, personal consumption expenditures (PCE) and
government consumption expenditures (GCE) contributed to 3Q growth whereas
private domestic investment (PDI) and net exports (NetX) detracted from it.
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As
the graph above indicates, the most obvious quarter-over-quarter change occurred in inventories. The rate of private inventory accumulation shrank by
nearly half relative to 2Q (rising by the smallest amount since 1Q2014), in the
process subtracting 1.44% from the 3Q headline. As we have frequently mentioned,
inventories can introduce noise and seriously distort the GDP headline number
over the short run; because of this, the BEA also publishes real final sales of
domestic product -- a secondary headline that excludes the impact of
inventories. For 3Q, real final sales grew at a much more robust +2.93%.
Consumer
activity once again contributed the bulk of the headline number (+2.19
percentage points), although that contribution was muted when compared to 2Q (0.24
percentage point lower); moreover, growth in health care spending was again the
single largest line item, comprising one-fifth of the PCE total. Meanwhile, fixed
commercial investments, governmental spending and exports weakened materially,
while imports subtracted less from the headline than during the prior quarter.
In
summary, then, the 3Q GDP report was “a mixed bag
indeed.”
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.
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