US Q3 GDP beats forecasts, but some economists caution details weak

Economic growth in the US slowed further last quarter amid a sharp slowdown in firms' investment on equipment which some economists said pointed towards a further slowdown in the months ahead.

According to a preliminary estimate from the Department of Commerce, US gross domestic product expanded at a quarterly annualised pace of 1.9% over the three months ending in September to reach $21.526trn.

That was below the 2.0% pace observed during the preceding three months and the 2.9% clip recorded in the year-earlier period.

However, a stronger than anticipated rise of 2.9% in household consumption (consensus: 2.6%) meant that GDP came in ahead of the 1.6% increase expected by analysts.

Nonetheless, Pantheon Macroeconomics's chief economist, Ian Shepherdson, said: "we doubt that Q4 will see such a solid increase in consumption, not least because the chainstore numbers indicate that people pulled forward spending after the August 1 announcement of tariffs on imported Chinese consumer goods. This boosted Q3 spending at the expense of Q4.

"[...] Indeed, our initial working assumption for Q4 GDP growth is just 1%, but if inventories and exports are as bad as some of the indicators suggest, then a zero or even a sub-zero reading is entirely possible."

Net foreign trade and inventory growth exerted only a slight drag on GDP growth, but non-residential fixed investment fell at annualised clip of 3.0%, its fastest pace since the end of 2015, which followed a drop of 1.0% during the second quarter, subtracting nearly half a percentage point from the rate of GDP growth.

Government outlays contributed 0.35 percentage points to the quarterly annualised rate of GDP growth and personal consumption 1.93 points.

Final domestic sales, which equates to GDP growth excluding private sector inventory accumulation, slowed from a 3.6% clip to 2.0%.

Mickey Levy at Berenberg Capital Markets was more upbeat: "Looking ahead, we expect consumption growth to remain above 2%, and continued solid growth in residential fixed investment and government purchases.

"But, the prolonged industrial slowdown and sluggish global demand will likely keep headline real GDP growth modestly below 2% through H1 2020. We expect real GDP growth to return close to its longer-run potential rate, modestly above 2%, thereafter."