Thursday’s U.S. Data Release Highlights
October 27, 2022
The composition of U.S. real GDP growth last quarter reveals a weaker economy than the quarter-on-quarter annualized growth rate of 2.6% or the unchanged 1.8% year-on-year GDP increase. Personal consumption, which accounts by far for the largest share (70.7%) of GDP, rose only 1.4%, or a bit less than half as fast as GDP, and posted a year-on-year advance of just 2.0%, down from 7.4% in the previous four-quarter period that ended in 3Q 2021. Residential investment was hammered by rising mortgage rates dropped for a sixth consecutive period and at a quickening pace, falling 26.4% on quarter and 12.7% on year.
Improvement in other elements of GDP are unlikely to be sustained.
- Inventories exerted only a 0.7 percentage point (ppts) drag on GDP growth in 3Q after depressing the second-quarter growth rate by 1.9 ppts. In light of the weakening household sector, the strength of inventories was unplanned in part and will be rectified in the future.
- A 2.4% jump in government spending broke a streak of quarterly declines and was skewed by heavy defense expenditures. A Republican-controlled congress will put a tourniquet on the Biden Administration’s ability to loosen the purse strings when the economy weakens next year.
- Amid high interest rates and considerable political uncertainty, it’s doubtful that last quarter’s 3.7% rebound in non-residential business spending will be sustained anywhere near that pace.
- With the dollar appreciating and global growth shrinking, it’s even more doubtful that exports will maintain the growth pace of 13.8% in 2Q and 14.4% in 3Q 2022. Excluding net exports and inventory changes, real GDP rose at only a 0.5% quarterly pace in the summer.
A likely slowdown of business investment looking ahead is also suggested by today’s Commerce Department report on durable goods orders. While September’s rise of 0.4% beat economist expectations, the rise in 3Q was subdued, and the month’s orders for non-defense capital goods was 0.7% lower than in August.
The Kansas City Fed manufacturing index dived 24 points to a 30-month low of -22 in October. One has to go all the way back to ground zero in the pandemic lockdown (April 2020) to find a weaker reading (-62), and we are only a half year removed from this indicator’s record high of +46.
The personal consumption price deflator hasn’t yet improved materially. The sequence of year-on-year advances this year shows a high plateau of 6.4% in 1Q, 6.6% in 2Q and 6.3% last quarter. Excluding energy and food — two of the most inflationary impulses — inflation is hovering around 5.0% or more than twice the Fed’s objective.
Weekly new jobless insurance claims totaled 217k last week and averaged 219k over the past four weeks, attesting to the continuing highly tight U.S. labor market. Inflation has been broadening into more areas particularly in service sector activities, and the longer that labor costs remain as tight as now, the greater is the risk that longer-term inflation expectations become de-anchored.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: U.S. 3Q 2022 GDP
ShareThis
