Real GDP rose at a 3.5% annual rate in Q3, after a 4.6% pace in Q2 when activity rebounded after the weather-related slump in Q1. The consensus forecast was 3.0%, while our call was 3.2%.
That is the fourth time in five quarters that growth has exceeded 3%, something that hasn’t happened since a stretch in 2004 and 2005. Thus, it supports our view that above-trend growth in the US economy remains solid on track.
For now, we expect 3.2% growth in Q4 2014 and continue to expect GDP growth of around 3% in 2015. In our view, mid-2013 marked the transition from three years of US GDP growth close to 2% to three years of around 3% growth.
As growth around 3% is well above estimates of potential growth (our estimate is 2%), this implies that we should expect to see a continued downtrend in the unemployment rate. We still see the US economy reaching full employment by mid-2015, more than a year earlier than the Fed forecasts. At 281k, today’s 4-week average of new jobless claims is consistent with very strong payroll growth, of the order of 250k+ per month.
Within the GDP, there were important improvements from the previous quarter. Thus, final demand (=GDP less changes in inventories) expanded 4.2%, the strongest since Q4 2010, up from a 3.2% pace in Q2 and well above our 3.4% forecast. Real domestic final demand (=GDP less net exports and change in inventories) rose 2.7%, down from a 3.4% pace in Q2.
Inflation remains tame, though. In Q3 core PCE prices rose at a 1.4% annual rate following a 2.0% rise in Q2. The consensus forecast was also 1.4%. In Q3 the y/y pace was 1.5%, unchanged from Q2.
Q3 GDP growth was supported by a strong 5.5% rise in business investment after a 9.7% gain in Q2, and a sharply narrower trade gap. Thus, net exports added 1.3% point to Q3 GDP growth after a 0.3% point drag in Q2, as exports (+7,8%) outpaced imports (-1.7%).
As expected, consumer spending was softer in Q3, rising 1.8% following a 2.5% rise in Q2. Residential investment increased 1.8% after a 8.8% rise in Q2. Government demand increased 4.6% in Q3 after a 1.7% increase in Q2. Inventories subtracted 0.6% point from GDP growth in Q3 after adding 1.4% point to Q2 growth.
Nordea