U.S. Growth: Trick Or Treat?

Following the advanced release of the second-quarter 2018 real GDP report, there were many questions as to whether that robust performance was sustainable or just another one-quarter phenomenon. Well, the results are in and growth not only did not disappoint, but Q3 real GDP actually came in a bit stronger than expected at +3.5%. Interestingly, these back-to-back rather solid quarterly results did not quell the economic naysayers, as the conversation shifted more toward, “This is the peak in activity and an eventual slowdown is looming.” In other words, given that today is Halloween, do you fall in the “trick” camp or the “treat” camp? 

Three months ago, I blogged on this very topic (not Halloween, but the U.S. economy), “U.S. Econ Watch: Expanding Your Horizons,” so it seems only fitting to explore it yet again, and hopefully provide the reader with some useful nuggets to help you decide what you may receive after you ring that doorbell. Last time around, I looked beyond the headline growth figure and instead turned the focus to the underlying components, or the five cylinders of the GDP engine: personal consumption expenditures (PCE), gross private domestic investment, change in private inventories, net exports of goods and services and government spending and investment.

U.S. Real GDP

Personal Consumption Expenditures: Once again, PCE was the most noteworthy component of overall growth. In Q3, the annual growth rate for PCE came in at 4.0%, representing its best showing since 2014. This cylinder contributed roughly 2.7% to the overall real gross domestic product (GDP) increase and reflected solid showings for both goods and services. Treat.

Gross Private Domestic Investment: This category consists of both residential and nonresidential investment. Nonresidential, or business, investment experienced a pronounced slowing from Q2, posting a modest increase of only 0.8% versus 8.7% three months prior. The residential grouping was clearly a disappointment, falling 4.0%, the third consecutive quarterly contraction. Higher mortgage rates appear to be dampening housing activity, a development that could linger in the period ahead. Trick.