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GDP Stabilizing in Q3

10/31/2014
By Jennifer Coombs

The GDP numbers did little to move the market on Thursday morning, though the first Q3 reading was significantly better than expected. GDP growth decelerated slightly in Q3 after Q2 showed a massive pop in activity following adverse weather impacts in Q1. The early estimate came in at a healthy 3.5% annualized rate for Q3, following the jump of 4.6% in Q2 and still ahead of the consensus estimate at 3.0%. Final sales increased by 4.2% in the quarter after increasing 3.2% in the second quarter. This pop in real GDP is primarily reflective of positive contributions from personal consumption expenditures (PCE), exports, non-residential fixed investment, and government spending, though it was partially offset by negative data from private inventory investment. Imports also decreased during the quarter. GDP data in 2014 may still be affected by the slow economic activity in the first quarter since the third quarter is now seen as more of a settling back to a normal rate. The notable negative in Q3 was a drop in inventory investment and a slowdown in consumer spending growth, which were both strong in Q2. However, the deceleration in growth between Q2 and Q3 is largely reflected in the downturn in private inventory investment and decelerations in PCE.  Overall, we can say that the economy grew better than everyone expected. The growth is very good news for corporate profits as reflected in recent string of better-than-expected earnings across all industries, so far. However, it will be interesting to see how soon the Fed decides to reverse its commitment to avoid raising interest rates for a “considerable time.”

Jennifer Coombs
Wall Street Strategies

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