3rd Quarter GDP good, but no game-changer

I was thinking Friday's first release of 3rd Quarter real GDP might be mediocre, especially in light of the heavy storms of August and September and some tepid consumer spending figures. But we got a surprise to the upside instead.

The U.S. economy unexpectedly maintained a brisk pace of growth in the third quarter as an increase in inventory investment and a smaller trade deficit offset a hurricane-related slowdown in consumer spending and a decline in construction.

Gross domestic product increased at a 3.0 percent annual rate in the July-September period after expanding at a 3.1 percent pace in the second quarter, the Commerce Department said on Friday…

Economists polled by Reuters had forecast the economy growing at a 2.5 percent pace in the third quarter. Excluding inventory investment, the economy grew at a 2.3 percent rate, slowing from the second quarter's 2.9 percent pace.

This is the first time in 3 years that we’ve had 2 straight quarters of 3% growth. So let’s look at the GDP report and see where it came from.

As the article hints, a lot of it was due to the inventory growth, as the economy’s actual final sales were the lowest of the 3 quarters of 2017. This graph from Econbrowser showcases how most segments outside of residential construction grew in relatively small but steady ways between July and September.



Interestingly, rising inflation did pull down growth a bit.

Current-dollar GDP increased 5.2 percent, or $245.5 billion, in the third quarter to a level of $19,495.5 billion. In the second quarter, current-dollar GDP increased 4.1 percent, or $192.3 billion (table 1 and table 3).

The price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with an increase of 0.9 percent in the second quarter (table 4). The PCE price index increased 1.5 percent, compared with an increase of 0.3 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 0.9 percent.

I suppose that makes the figures a little more impressive, although I doubt you’re getting a nominal bump of 5% in total pay or quality of life these days.

Bottom line, we are still in the realm of the steady and decent growth that we have been in for most of the 8 years of the Obama Recovery. And the recent resumption of low unemployment claims after some hurricane-related spikes seems to indicate we won’t go into recession very soon.

The concerns I see are the declining rate of job growth over the last year (indicating we may be maxing out in our aging country) and a decline in real wages for the last 2 months. But that’s a gradual adjustment that likely wouldn’t cause a sudden economic decline that should make you panic.

What should concern us is the possibility of the senile fool in the White House and Koched-up GOP slugs in Congress making disastrous decisions on taxes and health care that would put our already crippling inequality on steroids. If that happens in the next few months, then we will are likely to lose our cruising altitude a lot faster than we are currently slated to do.