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According
to the
Bureau
of Economic Analysis‘ (BEA) “advance” estimate, 3Q2014 growth in real U.S.
gross domestic product (
GDP) expanded
at a seasonally adjusted and annualized rate of 3.5 percent -- roughly 1.1
percentage points below 2Q’s 4.6 percent. All four categories -- personal
consumption expenditures (PCE), private domestic investment (PDI), net exports
(NetX), and government consumption expenditures (GCE) -- contributed to 3Q growth.
For
this report the BEA assumed annualized net aggregate inflation of 1.28 percent.
By comparison, the growth rate of the Bureau of Labor Statistics’ concurrent seasonally
adjusted
CPI-U index was -0.10
percent (annualized); meanwhile, the price index reported by the
Billion Prices Project (
BPP)
was -0.18 percent. Were the BEA’s nominal estimates corrected for inflation
using the CPI-U, real 3Q
GDP would
have grown by 4.97 percent; if using the
BPP
inflation rate, growth would have been 5.07 percent.
Among
the notable items in the report:
--
The headline contribution of consumer expenditures for goods was 0.70
percentage point (down 0.63 percentage point from 2Q).
--
The contribution from consumer services spending increased to 0.52 percent (up 0.10
percent). The combined contribution to the headline number by consumers was
1.22 percent (down 0.53 percent).
--
Commercial private fixed investments added 0.74 percent to the headline number
(down 0.71 percent), and this continued positive growth continues to be almost
exclusively in non-residential construction.
--
Inventories subtracted 0.57 percent from the headline number (down 1.99 percent).
--
Governmental spending was up 0.52 percent, adding 0.83 percent to the headline.
The increase was all at the federal level (likely the usual fiscal year-end “use
it or lose it” budgetary spending spree by federal agencies); by contrast, growth
of state and local spending softened 0.23 percent relative to 2Q.
--
Exports added 1.03 percent to the headline growth rate (down 0.40 percent).
--
Imports added 0.29 to the headline number (a +2.06 percent turnaround from 2Q).
The combined quarter-to-quarter impact of foreign trade on the headline number
was a significant +1.66 percent.
Growth
in real final sales of domestic product, the BEA’s “bottom line” indicator of
economic health (which excludes the ever-volatile inventories) jumped to 4.2
percent.
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--
The Federal Reserve’s argument for completing its QE taper was strengthened. An
economy growing at 3.54 percent is presumably healthy enough to be “weaned” off
central bank stimulus.
--
That said, consumers are not spending as if the economy is healthy. Consumer spending
contributed only about one-third of 3Q headline growth despite typically representing
over two-thirds of economic activity. Apparently consumers remain wary.
--
Also, the inventory “worm has turned.” It added 1.42 percentage points to 2Q’s headline
4.6 percent but subtracted 0.57 percentage point from 3Q’s 3.5 percent. As we
have mentioned many times, this is a line item that over the long haul has been
essentially a zero sum series. If it continues to revert to the mean, we could
see at least another quarter of negative contribution.
--
The wild card in all of this is reflected in the CPI and BPP numbers: the
strengthening of the dollar has created an apparent disinflationary pricing
environment for some goods that may be playing havoc with the BEA’s computations
for inventories, exports and imports. Imports are also certainly being impacted
by the double whammy of increased domestic production and crashing oil prices.
In any event, the impact of the strength of the dollar is likely masking to
some extent what is happening in the underlying “real” economy.
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.
