Recovery Summer VI went just as well as Recovery Summers I-V. According to the advance estimate of economic growth in the third quarter, the Bureau of Economic Analysis puts annualized GDP growth at 1.5%. That makes the 3.9% of Q2 look more like an outlier than Q1’s 0.6%:
Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 1.5 percent in the third quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9 percent. …
Real GDP increased 1.5 percent in the third quarter, after increasing 3.9 percent in the second. The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory investment and decelerations in exports, in nonresidential fixed investment, in PCE, in state and local government spending, and in residential fixed investment that were partly offset by a deceleration in imports.
The level of personal consumption expenditures still looks better than the overall GDP picture, with a 3.2% annualized increase over the previous quarter. In the past two years, consumers have kept the increase in personal spending above 3% in all but two quarters. It slacked off a little from Q2’s 3.6%, but not as much as one would think from the topline number.
So where did the decline come? Gross private domestic investment dropped 5.6%, the first decline since 2014Q1. This may be a sign of a lack of confidence in the economy, or it could be a hiccup, but it’s hard to argue that when both the winter and summer are producing below-2% levels of economic growth. At the moment, the annual GDP is at 2.4%, better than 2014’s 1.5% but hardly significant enough to spark the kind of job creation needed to produce higher wages and better consumer and investor demand.
Reuters chalks it up to “inventory drag”:
U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, but solid domestic demand could encourage the Federal Reserve to raise interest rates in December.
Gross domestic product increased at a 1.5 percent annual rate after expanding at a 3.9 percent clip in the second quarter, the Commerce Department said on Thursday.
The inventory drag, however, is likely to be temporary and economists expect growth to pick up in the fourth quarter given strong domestic fundamentals.
That might be the case, but the big decline in business investment was in structures rather than inventory. However, strengthening Reuters’ case is real final sales of domestic product — GDP after inventory adjustments — which came in at 3.0%, and 2.9% to domestic purchasers. Both declined by almost a full point over the Q2 figures, though, which still points to potential trouble.
Market Watch doesn’t expect Q4 to dramatically improve the prospects for 2015:
Economists predict consumer spending will show another healthy gain in the final three months of 2015, potentially pushing GDP back toward the 2.5% range or higher.
Still, the third-quarter dropoff almost assures the U.S. will fail to break 3% annual growth in 2015 for the 10th straight year. The last time the economy expanded that fast was in 2005.
More skittish behavior by businesses is the chief reason. U.S. companies such as manufacturers with lots of foreign customers were hit hard during the summer by a dollar whose surging value raised the price of American-made products. At the same time, U.S. energy companies cut spending on rigs, heavy machinery and other expensive equipment after the slump in oil prices.
Worried about an inventory overhang, businesses have trimmed production. The value of inventories rose just $56.8 billion from July to September after $100 billion-plus increases in the prior two quarters that marked the biggest back-to-back gains ever.
The best news is that consumers still feel confident enough to spend. If oil prices rebound, though, that may change. And if durable goods orders continue to fall, that may reflect more hesitation than these numbers suggest. And even if 2015 comes in at 2.5% overall, that will only tie the best year of recovery (2010), with the US economy remaining at essentially a stagnation level.