Zhang Yongjun (Deputy Chief Economist of China International Economic Exchange Center)
On the morning of October 26th Eastern Time, the US Department of Commerce's Bureau of Economic Analysis released US national economic accounting data for the third quarter of 2023, with the US economy growing at an annualized rate of 4.9% month on month in the third quarter. This growth rate was 2.8 percentage points higher than the previous quarter, significantly higher than the normal level, but the US stock market did not respond well on the day of the data release. How do you view the economic situation and future trends of the United States in the third quarter?
Firstly, the quarter on quarter GDP growth rate in the United States was relatively high, mainly influenced by consumption, restocking, and public spending. According to released data, the US GDP growth rate in the third quarter was relatively high, mainly driven by consumption and investment. In the third quarter, private consumption in the United States increased by 4.0% year-on-year, contributing 56.6% to GDP growth and driving 2.69 percentage points of GDP growth; Private investment increased by 8.4% year-on-year, contributing 30.8% to GDP growth and driving 1.47 percentage points of GDP growth; Public consumption and investment expenditure increased by 4.6% year-on-year, contributing 16.1% to GDP growth and driving 0.79 percentage points of GDP growth; The growth rate of these sub items is higher than normal.
The GDP growth rate in the United States was relatively high in the third quarter, but there are two aspects that need to be explained. Firstly, the year-on-year growth rate of private consumption in the United States was relatively high in the third quarter, but private household income in the United States decreased by 1% in the third quarter. Under normal circumstances, private household income decreased, and rapid growth in private household consumption should not be supported. One explanation for this phenomenon in the past two years is that due to the large amount of aid and subsidies provided by the US government to private households during the pandemic, private households have more savings in their accounts, and the short-term decline in income will not immediately affect household consumption expenditures. If this explanation is reasonable, there is still a problem with the data for the third quarter. In this case, the proportion of private household savings to disposable income reached 3.8%, which did not decrease compared to normal conditions and was slightly 0.1 percentage points higher than the level for the entire year of 2022. This is quite puzzling and needs further observation.
On the other hand, it is worth noting that the private capital formation in the United States had a strong driving effect on GDP in the third quarter, but the growth of private fixed capital investment in the United States was not significant, mainly affected by the increase in inventory. According to comparable prices, the year-on-year growth of US GDP in the third quarter was 266.2 billion US dollars, and the growth of private capital formation was 81.9 billion US dollars. However, the growth of fixed capital investment formation was only 7.8 billion US dollars, and inventory increased by 65.6 billion US dollars. The problem is that private consumption, especially commodity consumption, grew rapidly in the third quarter of the United States, with a year-on-year growth rate of 4.8%, while industrial output was close to zero growth during the same period. Therefore, there should not be a significant increase in commodity inventory.
The changes in real estate inventory cannot fully explain the significant increase in inventory in the United States. According to relevant reports, there were 1.08 million unsold homes in the United States at the end of June; As of the end of September, the number of unsold homes in the United States was 1.13 million; The number of unsold homes in the United States increased by 50000 in the third quarter. As of September 2023, the average price of second-hand homes in the United States (including single family villas, townhouses, condominiums, and cooperative apartments) was $394300; From this, it can be inferred that the inventory of American homes has increased by $20 billion, and the increase in unsold homes can only explain a small part of the total inventory increase, while the rest remains a mystery.
The GDP growth in the third quarter of the United States was relatively fast, and usually there should be a positive reaction from the stock market. However, after the release of the GDP data for the third quarter of the United States, all three major stock indexes in the United States fell on the same day. The Dow Jones index fell 0.76%, the Standard&Poor's fell 1.18%, and the Nasdaq fell 1.76%. The US dollar exchange rate index did not rise on the same day, but instead experienced a slight decline. The price of US crude oil futures has shown a significant decline, with a drop of over 2%.
There may be two reasons why this situation occurs. Firstly, in the context of rapid GDP growth in the United States, the pace of recent consumer price increases has accelerated, with a year-on-year increase rate of 3.7% in September, which is significantly higher than the Federal Reserve's target level of 2%; Meanwhile, the unemployment rate remained low, at 3.8% in September; In this situation, the market is concerned that the possibility of the Federal Reserve raising interest rates again will increase, which will have a negative impact on the securities market. Secondly, from an expected perspective, there are still doubts in the market about the economic situation of the United States in the fourth quarter and next year, especially with the current high leverage ratios of the US securities market and government departments. With the continuous interest rate hikes by the Federal Reserve, higher interest rates can easily trigger financial risks. The financial risks faced by the United States will rise and may spill over to the outside, which in turn will have an impact on the US economy.