US: Q3 GDP Upward Revision Belies Mixed Report

The second release of the Q3 national accounts revised up the initial assessment of GDP growth. Instead of expanding by 2.8% (q-o-q annualized), GDP accelerated by 3.6%, up from a 2.5% rate in Q2 and 1.1% increase in Q1. Inventories were the main driver behind the increase in activity but they could translate into a drag on Q4 growth. Elsewhere, personal consumption growth moderated to 1.4% (q-o-q annualized) in Q3 from 1.8% in Q2 and 2.3% in Q1. Consumer activity has been buffeted by adverse fiscal headwinds this year when the Federal government released a torrent of tax hikes and spending cuts in Q1. There has been some good news on the consumption front, notably in hiring. Non-farm payrolls rose by 203,000 last month following October’s 200,000 increase, while the unemployment rate fell back from 7.3% to 7.0%. In addition, personal expenditure entered Q4 on a positive note, with retail sales rising by 0.4% (m-o-m) in October.

November’s forward-looking ISM survey for manufacturing showed factories ramping up production ahead of the start of the holiday spending spree. This does not mean that the industrial picture is completely rosy, however. Federal budget reductions, especially in defense spending, hit manufacturers hard this year (with more cuts possibly forthcoming in January). Indeed, October orders for durables were disrupted by the volatile aircraft/transportation component which declined sharply. Our panel’s forecasts for investment and production are largely unchanged. The 2014 GDP estimate has also remained unchanged, at 2.6% this month, with the financial markets trying to come to terms with the fact that monetary tapering is now likely to come sooner rather than later, and possibly as early as this month.


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