Tags: Q3 | GDP | report | spending

Regions Financial: Q3 GDP Report Shows Signs of Weakness Beneath Surface

By    |   Friday, 31 October 2014 11:45 AM

While the economy grew a stronger-than-expected 3.5 percent annualized in the third quarter, some elements of the report weren't so rosy, according to economists at Regions Financial led by Richard Moody.

"While the headline growth rate was not meaningfully out of alignment with expectations the composition of growth was," they wrote in a commentary.

"As we do each quarter, we will note the [government's] first pass at real GDP in any given quarter is based on highly incomplete source data and hence subject to large revisions. The typical change in GDP growth between the first and third estimates is 0.6 percent."

So what are the signs of weakness?

Real consumer spending grew just 1.8 percent annualized in the quarter, the economists pointed out.

In addition, "motor vehicle sales came in at an annual rate of 16.81 million units for the quarter. This, however, was largely a function of August's sales rate soaring to 17.5 million units, while the underlying trend is closer to 16.4 million units, so right off the bat motor vehicles figure to be a drag on Q4 growth," they wrote.

A shrinking trade deficit and a surge in defense spending accounted for much of the GDP growth. But U.S. exports may soon suffer from economic weakness overseas, the economists noted. And the increased spending, if it's not revised downward, will likely fall back in the fourth quarter.

"Pending revision, the first round of Q3 GDP data shows an economy that, while clearly not firing on all cylinders nonetheless continues to post steady improvement."

Still, "we expect growth to remain near 3.0 percent over coming quarters," the economists predicted.

Nobel laureate economist Paul Krugman sounds much more pessimistic. "The West has fallen into a slump similar to Japan's, but worse," he writes in The New York Times.

And what's the reason for that?

"Western policies since 2008 have been so inadequate, if not actively counterproductive, that Japan's failings seem minor in comparison," Krugman says. "And Western workers have experienced a level of suffering that Japan has managed to avoid."

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While the economy grew a stronger-than-expected 3.5 percent annualized in the third quarter, some elements of the report weren't so rosy, according to economists at Regions Financial led by Richard Moody.
Q3, GDP, report, spending
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2014-45-31
Friday, 31 October 2014 11:45 AM
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