Yesterday, we learned that GDP accelerated to 2.5% in Q3, with surprisingly strong growth in personal consumption expenditures.
Deutsche Bank economist Joe Lavorgna notes that final sales, which excludes inventory stocking, was particularly strong. In fact, he was impressed enough that he raised his Q4 GDP estimate to 3.0%, up from a prior forecast of 2.2%. Here’s what he said:
Recession risk is fading fast. Q3 real GDP rose 2.5%, a couple of tenths less than what we were expecting. More importantly, final sales, defined as GDP less inventories, grew more than the +3.3% we had been anticipating, rising a relatively sturdy +3.6%. Final sales to private domestic purchasers advanced an even stronger 4.1%. This component is arguably the best measure of underlying demand because it strips out net exports and government spending as well as inventory building. As evidenced in the chart below, there are tentative signs that private domestic demand is rebounding. This is impressive considering all the headwinds the economy faced last quarter from the debt ceiling imbroglio to the US Treasury downgrade, to the spreading of the European sovereign crisis and finally to the sharp decline in US financial market performance—equity prices fell almost 20%, and credit spreads widened massively.
Photo: Deutsche Bank