The United States expanded at a rate of 3.6 percent on the largest increase in inventories since 1998. Unfortunately, consumer spending, which represents 70 percent of the economy, is anemic. Sales data from holiday expectations were far less than expected as consumers pinch their wallets closed.
The GDP print far exceeded the 2.8 percent forecasts and was the strongest reading since the first quarter of 2012, according to the Commerce Department.”The big boost is from inventories, but the big question for fourth-quarter growth is whether this is voluntary inventory expansion or involuntary,” said Sam Coffin of UBS Securities LLC. The data showed a large increase in inventories from $86 billion to over $115 billion on expectation of improvements in business investment and household purchases, which are growing at the slowest pace in four years.
According to revised data, wages and salaries in the second quarter increased by $77.2 billion from the $54.6 billion reported initially. The third quarter wages and salaries increased $46 billion.
Gross domestic income increased by 1.4 percent annualized in the third quarter, which is over half of the 3.2 percent seen in the second quarter. Consumer spending also increased 1.4 percent – the smallest gain since the fourth quarter of 2009.
Business spending is lukewarm, and demand for non-defense capital goods, fell 1.2 percent in October after declining 1.4 percent in September. The Commerce Department data showed this was the first back-to-back decline over the last year.
Housing and auto sales continue to be the central growth focus. Residential construction increased 13 percent, annualized. Auto sales increased 7.1 percent.