U.S. Growth Slowed In Q3, But Annual Pace Continued To Improve

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by: James Picerno

Originally published on October 26, 2018

US GDP growth beat expectations in today's "advance" estimate of third-quarter data. Output increased by an annual 3.5% (seasonally adjusted real rate), the Bureau of Economic Analysis reported earlier today. The gain is slightly above The Capital Spectator's 3.3% nowcast (based on several sources) from earlier this week. Although the Q3 advance marks a solid rise, today's results reaffirm expectations that growth has decelerated following Q2's sizzling 4.2% surge.

Despite the softer quarter gain, on a year-over-year basis the upward trend for GDP comparisons remained intact in Q3. The inflation-adjusted annual jump in real GDP ticked up to just above 3.0%, marking the ninth straight quarterly improvement. The 3.0% increase in Q3 versus the year-ago quarter reflects the strongest annual gain in three years, a sign that the nine-year-old economic expansion - the second-longest on record - still has room to run.

The nominal measure of GDP (before adjusting for inflation) also ticked up in year-over-year terms in Q3, although just barely. Output increased 5.5%, fractionally faster than Q2's 5.4% gain. The generally unchanged annual pace at the nominal level raises the possibility that the recent rebound in economic growth may have peaked.

While headline GDP growth decelerated on a quarterly basis in Q3, consumer spending - the main driver of economic activity - picked up. Real personal consumption expenditures grew 4.0% in the July through September period, up from 3.8% in Q2. The latest gain in spending marks the strongest increase since 2014 for quarter-over-quarter comparisons.

Overall, today's results reaffirm that economic growth remains healthy, and so, recession risk remains low, as noted in last week's business-cycle profile and this week's issue of The US Business Cycle Risk Report. But with expectations now focused on the potential for an ongoing slowdown in the macro trend, the focus in the weeks ahead turns to incoming data for early clues on what to expect for Q4.