US GDP grew above market estimates, awaiting PCE - Nomura
Analysts at Nomura noted that in the BEA’s second estimate, real GDP in Q3 grew 3.3% q-o-q saar, above market consensus but below our forecast (Nomura: 3.5%, Consensus: 3.2%), reflecting a 0.3pp upward revision from the BEA’s advance estimate.
Key Quotes:
"Most of the upward revision was concentrated in non-residential fixed investment, state & local government spending and inventory investment. Q3 core PCE price inflation was revised up slightly to 1.4% y-o-y, from 1.3%. This should marginally lessen inflation concerns for the FOMC.
We will find out how this upward revision is distributed across the quarter when we get the monthly data tomorrow. Gross domestic income (GDI), an income-side measure of growth released with the second estimate, increased 2.5% q-o-q saar. The average of GDP and GDI was 2.9%, after growing 2.7% in Q2 and 2.0% in Q1.
Although lower than real GDP growth, these indicators point to solid growth. Looking at the details of the release, personal consumption expenditure (PCE) came in at 2.3%, in line with our expectation and 0.1pp lower than the advance estimate. Consumer spending has been a solid driver of GDP growth and we expect this trend to continue in Q4. Equipment investment growth was revised up 1.8pp to 10.4%.
The industrial sector of the economy appears to be gaining momentum and we expect this trend to continue over the near term. Components of equipment investment that can be sensitive to cyclical energy production added moderately to equipment investment growth (e.g., heavy trucks and oilfield machinery) but the decomposition of equipment investment suggests growth was broad-based across other categories as well. In particular, the contribution from industrial equipment has firmed in recent quarters. A recent pick-up in computers and peripherals investment also contributed strongly to equipment investment.
The change in private inventories contributed a solid 0.8pp to Q3 real GDP growth, reflecting a modest 0.1pp upward revision. This upward revision was slightly weaker than we had expected and contributed to a slight downside miss for our forecast. Despite the recent hurricanes, which often contribute to inventory drawdowns, inventory investment was resilient in Q3. Excluding inventories, real final sales grew 2.5% q-o-q saar, pointing to healthy underlying growth. However, motor vehicle production remained a drag in Q3, falling 10.9% q-o-q saar. Auto production has remained subpar in 2017 as demand for new vehicles has slowed from a strong 2016 pace. Real GDP in Q3 excluding motor vehicle output was up 3.7% q-o-q saar.
GDP tracking update: Inventory investment in the second estimate of Q3 real GDP was below our expectations, implying a stronger contribution from inventories in Q4. Moreover, stronger-than-expected pending home sales for October imply somewhat more residential investment in Q4. Altogether, we raised our Q4 GDP tracking estimate 0.3pp to 2.6% q-o-q saar. Note that the Q3 monthly profile for PCE, released tomorrow, could lead to revisions to our Q4 tracking estimate."