3Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +5.16% (+4.9% expected), up 0.29 percentage point (PP) from the “advance” estimate (“3Qv1”) and +3.10PP from 2Q2023.

As with 3Qv1, 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. The 3Qv2 update reflected “upward revisions to nonresidential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending,” the BEA wrote, adding, “Imports, which are a subtraction in the calculation of GDP, were revised down.”

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As for details (billions of chained 2017 dollars; all relative to 3Qv1) --

PCE (-$14.7B):

• Goods (-$1.4B). Spending on durable goods retreated ($3.9B), led by motor vehicles and parts (-$3.3B).
• Services (-$13.1B). Household consumption expenditures fell ($10.6B), led by a combination of financial services and insurance (-$6.7B) and other services (-$4.5B)

PDI (+$19.4B):

• Fixed investment (+$15.3B). Gains in nonresidential investment (+$11.0B) were led by structures (+$8.0B). Residential fixed investment was revised by +$4.1B.
• Inventories (+$3.3B). Nonfarm inventories (+$2.9B) led the gain in this category.

NetX (+$2.3B):

• Exports (-$1.6B). Services (-$1.9B) led the downward revision in this category.
• Imports (-$3.7B). Here, too, services (-$4.2B) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision boosted NetX relative to 3Qv1.

GCE (+$8.3B):

• Federal (+$2.9B). Nondefense consumption expenditures (+$2.5B) led this category.
• State and local (+$5.5B). Gross investment (+$5.2B) dominated.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.76% (+0.21PP from 3Qv1), a level 1.70PP above the 2Q2023 estimate. QoQ growth in gross domestic income, by contrast, was reported to be a less “zippy” +1.5%, up from +0.5% in 1&2Q2023.

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“Evidence of economic strength over the summer could mislead some to assume the economy is on a strong trajectory — it is not,” said chief economist Gregory Daco of EY Parthenon.

“Nothing [in this report] was sufficient to change the economy’s overall trajectory nor the expectation that growth will slow significantly in the fourth quarter,” added chief economist Joshua Shapiro of MFR Inc.

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.