3Q2023 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) returned the headline growth rate of the U.S. economy to on par with the initial estimate -- i.e., a seasonally adjusted and annualized rate (SAAR) of +4.86% (+5.2% expected), down 0.29 percentage point (PP) from the second estimate (“3Qv2”) but +2.06PP from 2Q2023.

As can be seen in the right-hand graph above, the underlying components have shifted around quite noticeably over time. In 3Qv1 and 3Qv2, three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- had contributed positively to the headline while net exports (NetX) detracted from it. In 3Qv3, by contrast, all four components contributed positively to the headline -- although the contribution from NetX was marginal at best.

This report “primarily reflected a downward revision to consumer spending,” the BEA wrote. “Imports, which are a subtraction in the calculation of GDP, were revised down,” resulting in NetX moving ever so slightly into positive territory.

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As for details (billions of chained 2017 dollars; all relative to 3Qv2) --

PCE (-$18.1B):

• Goods (+$2.3B). Spending on durable goods retreated ($0.6B), led by motor vehicles and parts (-$0.5B). However, nondurable goods increased ($2.8B), led by gasoline and other energy goods (+$3.2B).
• Services (-$19.9B). Household consumption expenditures tumbled ($24.1B), led other services (-$16.0B).

PDI (-4.4B):

• Fixed investment (+$2.3B). Gains in nonresidential investment (+$1.4B) were led by structures (+$6.2B) but largely offset by equipment (-$2.8B) and intellectual property products (-$3.3B). Residential fixed investment was revised by +$0.8B.
• Inventories (-$6.1B). Nonfarm inventories (-$5.5B) led the drop in this category.

NetX (+$4.7B):

• Exports (-$3.4B). Services (-$3.4B) led the downward revision in this category.
• Imports (-$8.2B). Here, too, services (-$6.9B) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision nudged NetX up relative to 3Qv2.

GCE (+$2.5B):

• Federal (+$0.9B). National defense consumption expenditures (+$0.4B) led this category.
• State and local (+$1.9B). Gross investment (+$1.9B) dominated here.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.60% (-0.16PP from 3Qv2), a level 1.54PP above the 2Q2023 estimate. QoQ growth in gross domestic income, by contrast, was unchanged at a less “zippy” +1.5%, up from +0.5% in 1&2Q2023.

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“Nothing here was sufficient to change the economy’s overall trajectory nor the expectation that growth slowed in the fourth quarter,” said 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.