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What’s Up with GDP?

By NAM News Room

Yesterday’s headlines trumpeted a rebound in GDP, after two quarters of contraction, but the underlying data show a more complicated picture. NAM Chief Economist Chad Moutray took a look at the Bureau of Economic Analysis numbers and explained them to us.

In case you missed it: “After contracting in the first two quarters of 2022, the U.S. economy rebounded in the third quarter, expanding 2.6% at the annual rate,” said Moutray.

The details: “Real gross domestic product was boosted by strength in consumer spending on services, government spending, net exports and nonresidential fixed investment,” said Moutray. “At the same time, goods spending was a drag on growth, along with the housing market and inventory spending.” Some of the key contrasts:

  • “Consumer spending on goods fell in each quarter year to date, down 1.2% at the annual rate in the third quarter. … In contrast, service-sector spending rose 2.8% in the third quarter, slowing but extending the 4.6% gain in the second quarter,” said Moutray.
  • Meanwhile, “Nonresidential fixed investment rose 3.7% in the third quarter at the annual rate, accelerating from the 0.1% gain in the second quarter. However, “higher mortgage rates have sharply reduced residential spending, with activity plummeting 26.4% in the third quarter.”

The road ahead: “Despite the improvement in activity in the third quarter, there continue to be significant downside risks in the economic outlook, with the risk of a recession elevated,” said Moutray. “Indeed, the current forecast is for real GDP to increase 1.8% in 2022 on an annual basis, with 0.7% growth in 2023.”

Durable goods orders increase: Meanwhile, durable goods orders rose in September, according to the U.S. Census Bureau.

  • “New orders for durable goods rose 0.4% from $273.7 billion in August to a record $274.7 billion in September,” said Moutray. “With that said, these data were buoyed by strong nondefense aircraft and parts orders, which can be highly volatile from month to month. Excluding transportation equipment, new durable goods orders fell 0.5% from a record $180.2 billion to $179.3 billion, the first decline since February.”
  • “This suggests broad-based weaknesses in durable goods demand in September, and more importantly, new orders growth has been flat since May,” said Moutray. “More encouragingly, new durable goods orders have increased 11.3% year-over-year, or 5.1% with transportation equipment excluded.”
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