US Q3 GDP: Stronger than expected despite storm related disruptions - Natixis

Thomas Julien, Research Analyst at Natixis, notes that US GDP rose by 3.0% QoQ annualized in Q3-17 after 3.1% in Q2-17 (above expectations) and the data were obviously distorted by hurricanes related effects: consumption was boosted by the pick-up in car sales seen in September while consumption of services weakened.

Key Quotes

“Residential investment and investment in structures were depressed and should recover in the next quarter. But on net, the trend is still positive with business investment growth remaining robust.”

“In short, latest report brought a positive surprise despite the volatility caused by storms. Further momentum is expected in Q4 as reconstruction gets under way.”

“GDP increased by an annualized rate of 3.0% QoQ at annual rate in Q3 2017 in the advance estimate, above expectations (+2.6%) and ours (+2.7%). Real final sales slowed down but kept increasing at a decent pace in Q3: +2.3% QoQ ar (after 2.9% in Q2). Q3 core PCE deflator rose in line with expectations (+1.3% QoQ ar).”

“Latest numbers were clearly distorted by weather related effects as hurricanes disrupted the activity in some states during the quarter. However, the net impact is far from obvious with clear negative repercussions and some catch-up effects already visible: Consumer spending obviously benefited from the rebound in car sales seen in September but suffered from a slump in utility spending. Inventories probably received a temporary boost that may not last in the upcoming quarters. On the negative side, residential investment and investment in structures were probably held back during the quarter due to storm effects. Strong export growth was also a plus for GDP.”

“In short: GDP report brought a positive surprise as the economy is still expanding at a solid pace despite the disruptions caused by storms. It is worth noting that part of the moves seen today will reverse in the following quarter with both positive (on the investment front mainly) and negative consequences (consumption of durables, inventories). But on net, the underlying trend remains good, still above potential with further expansion due in Q4 as reconstruction will follow.”