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U.S. Expanded 2% in Third Quarter, Supported by Consumption

Posted by Joseph Trevisani on Dec 22, 2015 12:55:23 PM

The U.S. economy grew at a 2.0 percent annualized pace in the third quarter, on par for the year, and propped up by steady if unspectacular gains in consumer spending as business spending and exports faltered.

The quarter brings the year’s growth rate down slightly to 2.17 percent from 2.25 percent in the first six months, according to Commerce Department figures issued Thursday in Washington. Economists had forecast a 1.9 percent rate.

This was the final revision to the quarter's GDP numbers, which were first reported at 1.6 percent in October and revised to 2.1 percent in November. The statistics will be adjusted once move when the final numbers for 2015 are released in July 2016. 

Estimates for GDP in the current quarter range from 1.0 to 3.1 percent with the Atlanta Fed’s GDPNow model at 1.9 percent. 

Personal consumption expenditures (PCE), which account for about 70 percent of the economy, rose at a 3.0 percent seasonally adjusted annual rate, unchanged, and slightly higher than the 2.9 percent prediction.  

Consumer spending has been aided by stable job creation and a large decline in energy costs, but it has been constrained by the lack of improvement in wages and salaries. 

While consumers may temporarily have more money in their pockets, they seem to be waiting for a permanent improvement in compensation before resuming pre-recession spending rates.

Personal consumption has increased at a 2.3 percent annual rate since the end of the recession in June 2009. That is about two-thirds of the 3.5 percent average from 1990 to 2005. Even the 3.0 percent average increase last year and this, is about 15 percent below historical precedence. 

The major components of economic activity after PCE, exports, imports, business fixed investment, private inventories and government spending, were largely unchanged in this revision.  

Inventories, though moved lower to $95.3 billion from $100.00 billion, still suggest a large build exists heading into the last quarter and 2016.

The wholesale inventory to sales ratio was at 1.31 in October, a cycle and post-recession high. Unless and until these inventories are depleted, in holiday shopping, an unexpected rise in exports, or January sales, they may warrant a 1.5- 2.0 percent hit to GDP as they are liquated in the first and second quarters of next year.  Inventories subtracted 0.7 percentage points from GDP in the third quarter against a previous estimate of a 0.6 percent drag.

International trade, exports net imports, deducted 0.3 percent from GDP growth in the third quarter after adding 0.2 percent in the prior three months  

Moderate economic growth in the U.S has continued to solicit imports while fading activity in the major U.S. exports markets has  demanded fewer American goods and a  strong dollar has made those more expensive.  In the government’s GDP accounting imports subtract from economic growth while exports add to it. 

Business equipment spending advanced at a 9.9 percent annualized pace, adding 0.6 percent to growth for the biggest gain in a year.

Core consumer prices, excluding food and energy costs, rose 1.4 percent in the third quarter, up 0.1 percent from the November revision, though much lower than the 1.9 percent pace in the second quarter.  

The 1.43 percent PCE price index quarterly average so far this year is similar to last year’s 1.45 percent average and slightly less than the 1.5 percent post-recession average.  The average for the 20 years from 1985 to 2005 is 2.5 percent.

The monthly annual core PCE rate has not been at Federal Reserve's 2.0 percent target since April 2012. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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Graph via ZeroHedge

 

 

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