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GDP:  Q3 Consumption Strong, Price Gains Moderate

October 26, 2018
Bottom Line: Economic activity was stronger than expected in the 3rd Quarter, according to the advance estimate. Consumption was even stronger than in the 2nd Quarter, up 4%, contributing 270bps of the 3.5% overall annualized advance. As expected net exports were a negative contribution after a very strong 2nd Quarter and inventory investment picked back up, the second bigger contributor in 3Q among the major categories of growth. Price pressures decelerated this quarter with the Core PCE Index up 1.6% annualized. Overall, the economy has been growing for the past 32 quarters at an average annualized growth rate of 3.3%, suggesting economic growth remains modest to moderate with real final sales growing at a 3.0% annualized rate over the last 4 quarters.

Gross Domestic Product ROSE by 3.5% in the 3rd Quarter, higher than market expectations for an increase of 3.3%. During the 8.0 years of economic expansion, the economy grew at an average annual rate of 3.3% after declining at a 2.9% rate during the recession. Economic activity is now 3.0% ABOVE its year ago level and 24.5% ABOVE its pre-recession 2007 Q4 cyclical peak.

Inventory Investment ROSE by $113.1 billion, adding 2.07 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 1.4% and is now 3.0% ABOVE its year ago level.

Additionally, Imports ROSE by 9.1% and Exports FELL by 3.5% so Net Exports FELL by $98.0 billion. This implies that Real Final Domestic Demand ROSE by 3.1% and is now 3.3% ABOVE its year ago level.

Consumer Spending ROSE by 4.0%, contributing 2.69 percentage points to economic growth.

Business Investment ROSE by 0.8%, adding 0.12 percentage points to GDP. Intellectual property products rose by 7.9% while non-residential structures declined by 7.9%.

Residential Investment FELL by 4.0%, subtracting 0.16 percentage points to economic growth.

Finally, Government Purchases ROSE by 3.3%, adding 0.56 percentage points to GDP. This was its 8th positive contribution in the last 12 quarters.

The GDP Price Index ROSE by 1.7%, compared with market expectations of 2.1%. This is also 2.3% ABOVE its year ago level.