–Real Final Sales +3.6%, Best Since Q4:2010; Core PCE px +2.1%

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q3 GDP report was largely as expected,
showing a +2.5% real growth rate, but the pickup was largely in the
hard-to-measure services component of consumption. This makes the report
possibly subject to greater revision than usual (average revision in
real GDP from the advance to second report was 0.1 point in the 25-year
1983-2008 period).

The pickup in Q3 growth formally eliminates the recession
definition that requires negative growth. Final sales were even stronger
at +3.6% in Q3, their best since Q4:2010, led by consumption.

About 80% of the consumption advance was in services (+3.0% in Q3),
where health, food, and finance spending gained. Services alone added
1.38 points to the GDP number, boosting it from below-average to a more
normal expansion pace.

Elsewhere in consumption, gains in motor vehicles and computers
added to durables spending, at +4.1% a rebound from -5.3% in Q2.
Nondurables rose 0.2% and added only 0.04 point to growth as spending on
clothing fell.

Investment spending added to growth from both the residential and
nonresidential sectors. Goods exports surged, also causing the external
sector to add.

Overall government spending was flat. Most government categories
fell, including state and local, and national nondefense. National
defense spending printed +4.8%.

Inventories have now cut from growth for three quarters. It’s
possible that inventories are reaching low levels that will require
rebuilding just as holiday sales pick up. That could be a plus for Q4
growth.

The Commerce Department assumed a pickup in construction and
inventories and a trade balance deterioration for missing data.

Commerce also altered its source data for nondefense aircraft
spending, and now incorporates the M-3 Factory Orders report rather than
the discontinued Census Current Industrial Report. Transportation
equipment added 0.34 point to the Q3 growth rate using the new data.

The GDP price index was +2.5%, and core PCE prices +2.1%, all as
expected.

National savings was $427.7 billion in Q3, representing 4.1% of
disposable personal income. That rate is a low since Q4:2007 and is down
a full point from Q2’s 5.1%.

Very preliminary reports into October suggest that auto and retail
sales remain strong. This will boost Q4 real growth, but the bulk of Q4
sales are holiday-related and face severe downward seasonal adjustment
factors. So how Q4 plays out remains a question.

GDP Components: Q4 Q1 Q2 prelm Q2 rev Q2 final Q3 prel
Real growth +2.3% +0.4% +1.3% +1.0% +1.3% +2.5%
Real final sales +4.2 +0.0 +1.1 +1.2 +1.6 +3.6
PCE +3.6 +2.1 +0.1 +0.4 +0.7 +2.4
Nonres fixed invest +8.7 +2.1 +6.3 +9.9 +10.3 +16.3
Res fixed invest +2.5 +2.4 +3.8 +3.4 +4.2 +2.4
Net Exprt Contrib add 1.37 cut 0.34 add 0.58 add 0.09 add 0.24 add 0.22
Inventory Contrib cut 1.79 add 0.32 add 0.18 cut 0.23 cut 0.28 cut 1.08

**Market News International Washington Bureau: (202)371-2121**

[TOPICS: M$U$$$,MU$$$$,M$$FI$,MT$$$$,MAUDS$]