United States: That still isn't a proper recovery

The first estimate of Q3 GDP growth is higher than expected, because of a surprising strength in exports, very unlikely to last in such a deteriorated global lack of demand. Final private domestic demand slowed as did price indices. In nominal terms, growth is expanding as slowly as it had since emerging from recession.

GDP growth came in stronger than we did expect, but solely due to a surprisingly strong contribution from net exports. Our forecast of 2% was coming with a net contribution from international trade limited to 0.4 pp. It is estimated to have been 1.3 pp, driving the quarterly annualised growth rate up to 3.5%.
This breakdown is however rather disappointing, as the boom of exports is unlikely to last in such a deteriorated global context, while the nascent acceleration in final domestic demand by the private sector was reversed. On a year-on-year basis, after reaching 3% in Q2, it slowed to 2.9% in Q3, a notch above its average since the US economy emerged from recession.
The slowdown in business spending on investment is particularly unwelcome, even if limited, as it highlights that the business sector still is not that optimistic about prospects for demand.
As fiscal policy is no more getting more austere from one year to the other, this brake will be less powerful, before government finances could finally support growth in 2016. This will help. But still, activity growth remains fragile.
In short, Fed officials should try and not turn over-optimistic. The US economy is strengthening, that’s for sure, but it remains far from strong enough. Its sensitiveness to exogenous shock probably remains high, in a context of still subdued inflation. Today’s report highlights another deceleration in the pace of increase of the deflator of GDP. It was up by 1.3% y/y in Q3, down from 2.1% in Q2. The core price index for consumption spending markedly decelerated between Q2 and Q3, down from 2% to 1.4%, a cause for concern. Digging into nominal estimates keeps us worried: nominal GDP will have recorded, in 2014, rather the same slow rate as since the end of the recession (3.7%-3.8%).

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