November 27, 2019

The revised estimate of third quarter GDP growth came in at 2.1% compared to an initial reading of 1.9%  That compares to GDP growth of 2.0% in the second quarter.   For 2018 as a whole GDP rose 2.5%.  We  expect GDP growth of 2.4% in both 2019 and  2020.  There is nothing in the third quarter GDP data that suggest that GDP growth is fading and that recession might be lurking by the end of next year.

Final sales, which is GDP excluding the change in business inventories rose 1.9% in the third quarter compared to 3.0% in the second quarter   Over the past year final sales have risen 2.1%.  In the third quarter inventories rose $79.8 billion after having climbed $69.4 billion in the second quarter Thus, inventories  subtracted 0.2% from GDP growth in the third quarter.  Inventories are expected to rise $75.0 billion throughout the rest of 2019 and 2020.

Final sales to domestic purchasers excludes both the change in inventories and trade rose 2.0% in the third quarter compared to to 3.6% in the second quarter.  In the third quarter the deficit for net exports widened by $7.6 billion from $980,7 billion to $988.3 billion.   In that quarter exports rose 0.9% while imports climbed 1.5%.  Given that final sales to domestic purchasers rose 1.9% while final sales rose 2.0%,  it is clear that the trade component subtracted 0.1% from GDP growth in that quarter.  Over the past year this series has risen at a 2.2% pace.

Consumption spending expanded by 2.9% in the third quarter after having jumped 4.6% in the second quarter.  Steady employment gains of about 160 thousand per month continue to boost  income.  The consumer has little debt.  And interest rates remain very low.  Everything related to the consumer seems quite solid.  We expect growth in consumer spending of 2.9% this year and 2.5% in 2020..


Nonresidential investment fell 2.7% in the third quarter after having declined 1.0% in the second quarter.  For 2018 nonresidential investment climbed 5.9%.  We expect nonresidential investment to  increase  0.8% in 2019 as uncertainty about GDP growth in the quarters ahead for both in and outside the U.S. has caused business leaders to become more cautious.  But we expect it to rebound somewhat to a 2.5% pace in 2020.  Given the extremely tight labor market we expect firms to spend more money on technology in an effort to boost production without increasing headcount.

Residential investment jumped 5.1% in the third quarter after having fallen by 3.0% in the second quarter as lower mortgage rates stimulated the growth in sales.   While demand for housing remains robust,  builders are having a difficult time finding qualified workers which curtails growth in this category.   Nevertheless, we expect residential investment to increase 0.5% in 2019 and 1.0% next year.

The foreign sector as measured by the deficit for real net exports widened by $7.6 billion in the second quarter from $980.7 billion to $988.3.   In that quarter exports rose 0.9%% while imports climbed by 1.5%.  We expect the deficit to widen slightly for the balance of the year.  If that is the case the trade component will add 0.1% to GDP growth in 2019 and subtract 0.1% from GDP growth in 2020.

Federal government spending rose 3.5% in the third quarter after having jumped 8.3% in the second quarter.  We expect Federal government spending to rise 4.3% this year as both defense  and non-defense spending climb by a moderate amount.

Following GDP growth of  2.5% in 2018 we expect growth of  2.4% in both 2019 and 2020.

Stephen Slifer


Charleston, SC