Economists Comment on GDP Growth
Paul Ashworth, Senior U.S. Economist, Capital Economics
The good news is that the 3.5% annualized rebound in third-quarter U.S. GDP confirms that the most severe and longest recession since the 1930s is over. We expect economic growth to continue at about this pace for another few quarters, as pent-up investment demand is released, inventories are restocked, and the boost to infrastructure spending from the fiscal stimulus continues. However, we suspect that all those positive factors will fade badly in the second half of next year. If, as we fear, consumption growth remains unusually lackluster, then GDP growth would slow to a crawl again.
Bart van Ark, Chief Economist, The Conference Board
The expansion in Q3 GDP (3.5%) shows we have clearly begun to emerge from the trough. But there's still a long way to go, and we still don't know enough about the sustainability of these recovery signals. The comparatively good Q3 news is largely driven by temporary factors like an uptick in consumer spending, notably through the U.S. government's "Cash for Clunkers" car sales subsidy program, as well as an easing in inventory rundowns.
Q4 could bring even faster easing in inventory rundowns that accounts for all GDP growth (we forecast 3.1%). Consumer spending will fall flat during the holiday season, and exports will recover more slowly than in Q3. Any modest uptick in investments in equipment and software will most likely be offset by continued declines in commercial real estate.
A less powerful inventory boost with no positive offsetting contributors may well limit GDP growth to 1 % in early 2010. We forecast growth to improve only moderately, to around 2%, by the middle of 2010. The savings rate will remain relatively high, at 4.5% to 5% of disposable income, dampening improvements in real consumer spending, investment, and trade.
Today's U.S. reports revealed an upside headline GDP surprise that was largely driven by a big inventory contribution, alongside a final sales gain that only modestly beat expectations and a modest down-tick in initial claims that is consistent with the slow but steady improvement in these figures that has generally been evident since March, and more specifically since July. The GDP bounce in Q3 will reinforce market perceptions, and our own assumption, that the recession ended in Q2 overall, and June in particular.
David Wyss, Chief Economist, Standard & Poor's
Real GDP rose at a 3.5% annual rate in the third quarter, better than the 3.2% expected by the market in updated consensus forecasts. The turnaround from the 0.7% second-quarter decline was led by consumer durable spending, which jumped 22.3% as a result of the Cash for Clunkers program. Exports rose 14.7% as world growth improved, and residential construction rose 23.4% as housing starts turned up. Inventories were still being cut by a big $131 billion in the third quarter, but that was less than the $160 billion second quarter runoff and added 0.9 percentage point to GDP growth. Overall, a stronger number than expected and showing fairly wide-spread growth. We still expect growth to drop off in the fourth quarter and in early 2010, however.
Tony Crescenzi, Market Strategist & Portfolio Manager, PIMCO
There are no major qualifiers within the GDP report that diminish the stronger-than-expected headline reading, except for the usual questions about whether the U.S. will achieve a successful handoff between the fiscal- and inventory-led forms of stimulus to more sustainable sources of demand. If anything, the fact that GDP advanced at a respectable pace when the impact of inventory investment is stripped out suggests the third quarter's pickup will extend into the current quarter and possibly beyond.