The economic data this morning paint contradictory pictures on the strength of the U.S. economy.
On the one hand GDP in the third quarter grew at a 3% annual rate. That was far better than the 2.6% expected by economists surveyed by Bloomberg. With the 3.1% growth in the second quarter, we’ve now got the two best back to back quarter since 2014.
On the other hand, real final sales to domestic purchasers, which strips out the effect of trade and inventories, the two most volatile components of the GDP figures, grew at only a 1.8% rate. That’s the slowest rate since early 2016 and a significant drop from the 2.7% rate in the second quarter. Trade and inventories aded a combined 1.14 percentage points to GDP growth.
Adding to the mixed picture presented by these two measures of growth, consumer spending, which accounts of 70% of the U.S. economy, grew by 2.4%. That’s better than the 2.1% projected by economists but below the 3.3% growth in the second quarter. Business fixed investment climbed 1.5% as spending on nonresidential buildings fell, spending on equipment and intellectual property rose, and spending on residential buildings declined.
I see enough in the decline in the consumer spending growth rate to raise concerns about whether incomes are rising fast enough to power the consumer sector. Worth watching the October jobs report for wage growth when those numbers are reported on November 3.