3Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +4.87% (+4.2% expected), up 2.81 percentage points (PP) from 2Q2023’s +2.06%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2023 was 2.93% higher than in 3Q2022; that growth rate was faster (+0.55PP) than 2Q2023’s +2.38% relative to 2Q2022.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 3Q percent-change headline. Net exports (NetX) detracted from it.

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As for details (billions of chained 2017 dollars; all comparisons to 2Q2023) --

PCE (+$150.6B):

* Goods (+$63.1B). Spending on durable goods rose (+$37.5B), led by recreational goods and vehicles (+$28.5B). Growth in spending on nondurable goods showed respectable momentum (+$26.9B), led by other nondurable goods (+$22.7B); gasoline and other energy goods fell (-$6.2B).

* Services (+$88.6B). Gains were led by housing and utilities (+$22.4B), followed closely by health care (+$19.6B).

PDI (+$82.0B):

* Fixed investment (+7.8B). This increase was concentrated in intellectual property products (+$9.0B) and residential investment (+$6.9B); equipment (-$12.2B) partially offset the rest of fixed investment.

* Inventories (+$65.7B). Nonfarm inventories expanded (+$66.3B); farm: -$0.2B.

NetX (-$9.5B):

* Exports (+$37.6B). Goods exports rose by $30.4B; services: +$7.4B.

* Imports (+$47.0B). Goods imports increased by $40.3B; services: +$6.9B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+42.8B): State and local consumption expenditures (+$12.4B) led this category; federal defense consumption expenditures: +$12.0B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +3.55% (up 1.49PP from 2Q).

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Looking ahead, one should not expect this stellar performance to repeat. “While this number is unsurprising, our expectations are for slower GDP going forward as positive contributions from volatile net exports and inventories are unlikely to be repeated,” wrote Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management. “While this one number makes the Fed weary of cutting rates, it does not move the needle for the November FOMC meeting which is certainly a skip. Higher and hold, yes. Higher and hiking, no.”

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.