Real GDP (Gross Domestic Product adjusted for inflation) grew at a 2.6% annualized rate in the 3rd Quarter of this year, according to advance estimates. This comes after the first two quarters of the year saw negative Real, inflation adjusted, growth of -1.6% in Q1 and -0.6% in Q2. While this is a welcome data point for current recession fears, a deeper dive into the components of GDP show signs of a struggling economy.
- For the sixth consecutive quarter, Residential Investment declined. In Q3, it declined at a -26.4% annualized rate. This is not shocking due to the drastic rise in mortgage interest rates, but a sector of the economy that is receding at a rapid pace
- There are some large questions around the housing market. While some are predicting a severe crash in home values, the reality is that supply of new homes is falling and supply of single-family homes for sale remains low. This will likely continue an upward pressure on home values, especially those closer to median prices.
- Exports increased again at a 14.4% annualized rate. While strong, the value of the dollar relative to other currencies remains strong and could have a negative impact on exports.
- Personal Consumption Expenditures for Goods declined at a -1.2% annualized rate while Services spending was up at a 2.8% annualized rate. Services continue to rebound from the lockdowns of the pandemic while Goods spending is falling, after a dramatic rise in 2020 and 2021.
- Real GDP uses a GDP-Price measure known as the GDP Implicit Price Deflator to measure inflation on a quarterly basis. In the second quarter, the GDP Deflator was 9.1%. For the third quarter, the inflation measure moderated to 4.1%. Inflation is still elevated and will likely lead the Fed to continue its push to fight inflation.
- Personal Consumption Expenditures (PCE) Chain-Type Price Index, an alternative measure to CPI, is up 6.3% from one year ago. “Core” PCE, the same index excluding Food and Energy, is up 4.9% from one year ago.
- After one year of declining, Real Disposable Personal Income grew at a 1.7% annualized rate.
These Advance Estimates will be revised, and updates will be released on November 30th, 2022.
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Source: U.S. Bureau of Economic Analysis; Gross Domestic Product, Third Quarter 2022 (Advanced Estimate), www.bea.gov