By Paul Gomme and Peter Rupert
The BEA announced that real GDP for 2023Q3 rose 4.9% on an annualized basis, according to the advance estimate. This was the highest reading since the pandemic-related data in 2021Q4. Economists surveyed by Dow Jones expected 4.7%. Consumers continued to spend: real personal consumption expenditures increased 4.0% with consumption of durable goods increasing 7.6%.
Real domestic private investment rose 8.4%. Residential investment rose 3.9% after falling for 9 straight quarters.
Real government consumption spending continued to rise, with Q3 increasing 4.6%, the fifth consecutive quarter of increases after five consecutive quarters of decline.
One way to parse GDP growth is to compute the contributions made by its constituent parts. For example, in 2023Q3, real investment rose 8.4% on an annualized basis, far higher than GDP (4.9%). The contribution of the growth in investment is computed by taking its growth rate and weighting (multiplying) by investment’s share of output. The result is that investment contributed 1.5 percentage points to the 4.9% growth in output. The remaining major components are summarized in the figure below. The largest contributions to the headline 4.9% output growth were consumption at 2.8 percentage points, and investment, 1.5 percentage points.
The figure above can also be used to dissect the increase in GDP growth, from 2.1% in Q2 to 4.9% in Q3. By far, the largest contributor to this 2.8 percentage point increase in output growth was consumption at 2.2 (= 2.8 – 0.6) percentage points. Exports also made a sizable contribution, 1.8 (= 0.7 -(-1.1)) points, which was more than offset by that of imports, -2.1 (= -0.9 – 1.2) points. The contributions of investment (0.6 points) and government (0.2 points) were more modest. It is of interest to note that while some in the media talk about the decline in consumer confidence surveys, consumers were the largest contributors to the Q3 growth.
The personal consumption expenditure (PCE) price index climbed to 2.9%, up from 2.5% in Q2, the lowest readings since 2020Q4. In a sense, this uptick in inflation as measured by the PCE price index is old news: this series is also reported monthly, and our recent post on this index already noted that this measure of inflation, measured at the three month horizon, has been moving up and away from the Fed’s 2% inflation target.
Bottom Line
GDP growth was broadbased and the economy continues to defy the doom crowd. PCE inflation has moderated of late while consumption and investment show considerable strength. Will we enter a recession? You bet, see the graph below. When? Who knows…no one has been able to consistently forecast turning points.
The data remain unconvinced that we are currently in recession territory.
