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United States GDP Q3 2023

United States: Economy records best reading since Q4 2021 in Q3

GDP growth picked up to 4.9% in seasonally adjusted annualized rate terms (SAAR) in the third quarter, from 2.1% in the second quarter. Q3’s reading marked the strongest increase since Q4 2021, though the figure was flattered by a large private inventory accumulation. On an annual basis, economic growth edged up to 2.9% in Q3, following the previous quarter’s 2.4% expansion.

Household spending growth improved to 4.0% SAAR in Q3 compared to a 0.8% expansion in Q2, buoyed by lower inflation and robust employment gains. Public consumption improved to a 4.6% increase in Q3 (Q2: +3.3% SAAR) on higher defense and non-defense spending. Meanwhile, fixed investment growth fell to 0.8% in Q3, marking the worst reading since Q4 2022 (Q2: +5.2% SAAR). This followed a surge in investment in H1 as firms splashed out on new factories following the approval of government financial incentives under the CHIPS and Inflation Reduction bills. On the external front, exports of goods and services increased 6.2% on a SAAR basis in the third quarter, which contrasted Q2’s 9.3% contraction. In addition, imports of goods and services growth picked up to 5.7% in Q3 (Q2: -7.6% SAAR).

The economy is expected to slow in Q4 and remain sluggish in H1 next year, but should avoid recession.

Looking at the less positive aspects of the Q3 reading, Desjardins’ Francis Généreux said: “Private nonresidential investment edged down (annualized rate of -0.1%) for the first time since summer 2021. Investment in equipment also cooled, along with nonresidential construction. It will be worth keeping an eye on these weak points to see if the stimulus from the Biden administration’s economic program is already starting to fade. […] Meanwhile, economic activity was lifted by an upsurge in private inventory accumulation, which added 1.32 percentage points to real GDP growth.” On the outlook, TD Economics’ Thomas Feltmate said: “Several headwinds including the […] United Auto Workers strike, the resumption of student loan repayments, and the potential for a government shutdown come mid-November could lead to a considerable drag on near-term activity. This is happening at a time when financial conditions have tightened significantly over the past few months and the real effective policy rate has become increasingly more restrictive alongside some easing in inflationary pressures. We expect growth to decelerate somewhere close to 1% in Q4, before slipping to a near stall speed through the first half of next year.”

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