The rapid growth of consumer spending in the United States has become the main contributor to GDP in the third quarter. Positive growth in private inventory investment, residential fixed investment, and government spending is also one of the reasons for the high quarter on quarter GDP growth. Looking ahead, there is a risk of weakening consumer support, limited sustainability of residential investment, and further observation of corporate investment momentum. It is expected that the overall US economic growth momentum will face a certain headwind in the fourth quarter of this year.
Consumer spending was the primary factor contributing to the positive growth of US GDP in the third quarter, mainly due to the increase in services and goods. Service consumption growth continued to be stronger than commodity consumption, but against the backdrop of high inflation stickiness, consumption still faces certain downward pressure in the future.
Personal consumption expenditure increased from 0.8% (2023Q2) to 4.0% (2023Q3) month on month, with a contribution rate of 2.69% to GDP. The increase in service consumption in the third quarter was mainly led by housing and public utilities, healthcare, financial services, and insurance. The increase in commodity consumption is mainly concentrated in other non durable goods (mainly prescription drugs), entertainment products, and vehicles. But there is still a foreseeable headwind in future consumption, facing certain downward pressure. 1) Millions of Americans will resume student loan payments on October 1st; 2) In the future, the support material of savings for consumption will gradually weaken, and the negative impact of rising interest rates on household spending may gradually become apparent.
The significant increase in private inventory investment is mainly due to the rebound in US demand, replenishment behavior by enterprises, and growth in manufacturing and retail trade.
In the third quarter, private inventory investment in the United States significantly increased from $14.93 billion to $80.57 billion, contributing 1.32% to the annualized rate of GDP. The increase in demand in the United States and its relatively strong driving force have led to a rebound in private inventory investment in the United States, as well as signs of a rebound in commercial inventory. Against the backdrop of resilient economic growth in the United States, companies may replenish their inventory for a period of time until consumer spending deteriorates.
The growth of fixed investment in residential areas has shifted from negative to positive, and the negative impact of short-term residential investment on the US economy is limited, with the possibility of continuing to drive the economy in the short term.
The annualized rate of residential fixed investment in the third quarter increased from -2.2% in the second quarter to 3.9%, contributing 0.15% to the actual GDP annualized rate in the third quarter. The rebound in new housing construction has driven up fixed investment in residential areas. It is expected that the short-term housing supply shortage will be difficult to quickly alleviate, so the drag of residential investment on the US economy will be relatively limited in the short term.
Non residential investment shifted to negative growth, with a rapid decrease from 7.4% in the second quarter to -0.1% in the third quarter, contributing 0.00% to GDP.
The decrease in non residential investment month on month was mainly due to the decrease in equipment investment offsetting the increase in intellectual property product investment and structural investment. The overall decline in investment may be affected by the continuous decline in corporate profits and the tightening of loans. Further observation is needed on the driving effect of government stimulus on corporate investment in the future.
Government spending remains strong, with imports increasing from -7.6% to 5.7% on a month on month basis, and exports increasing from -9.3% to 6.2% on a month on month basis.
The intensity of government expenditure in the third quarter is still at a historical high, with a month on month annualized rate of 4.6% for government consumption expenditure and total investment in the third quarter, higher than 3.3% in the second quarter, and a GDP contribution rate of 0.79% in the third quarter. The overall net export has a negative contribution to GDP due to the increase in imports, with a GDP contribution rate of -0.08%.
Prospects for the US economy:
The labor market in the United States is still experiencing strong growth, and the salary growth rate still has a certain stickiness, supporting the sustained and strong growth of American consumption. In the future, with the increase of employment supply, the tension in the job market will gradually ease, wage growth will slow down, and the downward speed of inflation will slow down. It is expected that the support for consumption in the job market and actual wage growth will weaken, while the support for excess savings will also further weaken. As a result, consumer spending by US residents may return to a weakening trend in the fourth quarter. In terms of fixed investment, the rebound in residential investment is difficult to sustain, and further observation is needed to determine whether policy incentives can support corporate investment to hedge against a decline in corporate profits. Private inventory investment may decline as consumer demand cools down. Therefore, overall, it is expected that the growth momentum of the US economy may weaken in the fourth quarter of this year.
Risk factors:
The US economic growth exceeded expectations; US monetary policy exceeded expectations; The fragility of the US financial system exceeds expectations; Global energy and food supply shocks exceeded expectations; Geopolitical risks exceed expectations.
This article is sourced from the selected research reports of securities firms