US 3Q GDP: More broad-based support to growth - Wells Fargo

Analysts from Wells Fargo, expect a more modest growth in the fourth quarter after the 2.9% increase during the 3Q in the US GDP. 

Key Quotes: 

“Output of the U.S. economy expanded at a 2.9 percent pace in the third quarter, marking the fastest quarterly pace of GDP growth since the third quarter of 2014. More importantly, there were more broad-based supports to growth than we have seen over the past few quarters. Our favorite measure of core demand, real final sales to private domestic purchasers, fell to 1.6 percent from 3.2 percent in the second quarter, which suggests some remaining underlying softness after the strong Q2 reading.”

“The headline PCE Deflator came in at 1.4 percent while the core measure rose 1.7 percent. While on the surface the downshift in inflation may raise some doubts about a possible rate hike out of the Fed later this year, the recent stability in oil and other commodity prices along with today’s stronger Q3 GDP reading suggests, in our view, that the Fed is still on track for a December rate hike.”

“While the stronger Q3 GDP reading is good news, we are skeptical that growth will remain as strong in the fourth quarter. The surge in export activity is likely unsustainable in light of a sluggish global economic environment while at the same time domestic demand should support stronger import growth. Thus, we expect much of the boost from net exports in the third quarter to be unwound in Q4. Some of the drag from trade in Q4 should be offset by somewhat stronger investment in business equipment and a bounce back in residential investment. Continued modest domestic demand combined with the sizable drag from trade that we expect in Q4, we think growth will come in between 2.0 to 2.5 percent. The theme of modest economic growth continues.”