Q3 GDP Bounces Back on Inventory Build and Exports
- Real Gross Domestic Product for 2016Q3 increased at a moderate 2.9 percent annual rate.
- New Orders for Durable Goods were essentially unchanged, dipping by 0.1 percent in September.
- Initial Claims for Unemployment Insurance decreased by 3,000, to 258,000 for the week ending Oct. 22.
The first estimate of third quarter 2016 real GDP showed growth bouncing back, about as expected, to a 2.9 percent annual growth rate. Inventories and trade were the key elements in the lift from weak 0.8 percent growth in the first quarter of 2016 and 1.4 percent growth in the second quarter. A normal rate of real (inflation adjusted) inventory accumulation is about $60 billion ($2009). In Q1 real inventory accumulation slipped to $40.7 billion. In Q2 inventories sold off, declining by $9.5 billion. In Q3 we see an inventory restocking of $12.6 billion. The swing from negative inventory accumulation in Q2 to positive in Q3 is a big lever on overall GDP. Inventories contributed 0.61 percentage points to the 2.9 percent overall real GDP growth rate in Q3. Net trade contributed about 0.83 percentage points to headline real GDP growth as exports of goods increased at a 14.5 percent annualized rate. Real consumer spending stepped down from an unsustainable 4.3 percent growth rate in Q2, to a moderate 2.1 percent rate in Q3. Overall business fixed investment remained weak in Q3 as business investment in equipment declined for the fourth consecutive quarter, and for six out of the last eight quarters, as oil field activity retrenched. Residential fixed investment dipped for the second consecutive quarter. We expect that to turn around in the current quarter and through 2017 as new home sales and housing starts gain momentum. Government spending increased at a meager 0.5 percent annualized rate in Q3 as state and local government spending eased. Overall, Q3 GDP came in about as expected with the components pointing to ongoing moderate growth in the current fourth quarter.
New orders for durable goods were essentially unchanged in September, easing by just 0.1 percent after gaining 0.3 percent in August. Most major categories saw small-to-moderate losses. Support came from new orders for motor vehicles and parts, up 1.2 percent, and new orders for commercial aircraft, up 12.5 percent. Core orders, nondefense capital goods excluding aircraft, dipped by 1.2 percent. This was a moderately weak report, suggesting that U.S. manufacturing is not feeling much momentum as car sales have likely crested, the dollar remains strong and energy industries have only just started to stabilize.
Initial claims for unemployment insurance decreased by 3,000 to hit 258,000 for the week ending October 22. Continuing claims fell by 15,000 to hit 2,039,000 for the week ending October 15. We expect payroll employment to increase by about 185,000 jobs in October.
Market Reaction: Equity markets opened with gains. The 10-year Treasury bond yield is up to 1.85 percent. NYMEX crude oil is down to $49.50/barrel. Natural gas futures are up to $3.24/mmbtu.
For a PDF version of this Comerica Economic Alert click here: GDP 10-28-16.