The biggest news last Friday (not involving the FBI) was that third quarter GDP was estimated at a relatively robust 2.9% annualized, its fastest pace in two years and twice that in the second quarter. Though broadly in line with market consensus, there were surprises in the details. On the positive side, exports soared at an annualized rate of 10.0%, while public-sector spending, private inventories, and business spending all turned from negative to positive. On the other hand, consumption grew by a relatively tepid 2.1% in the quarter, half its 4.3% pace in the prior quarter.
While certainly welcome news overall, the story was actually less positive than the headline. First, the core domestic economy, as measured by my preferred (if wonky) metric, “final sales to private domestic purchasers”—which nets out from GDP items that are generally less important to the property sector like inventory adjustments and net exports—grew by only 1.6%, half its 3.2% pace in the second quarter.
Second, some of the strongest improvements, such as in exports and inventory adjustments, are likely to prove to be one-off gains that will not be sustained in future periods. For example, exports were driven by overseas demand for soybeans following flooding in Argentina, while inventories rose in preparation for the holiday shopping season.
This article continues in the newsletter. Click the download button to access my full insights.
Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.