US: Q3 GDP Growth Not as Strong as It Seems – Nomura

Analysts at Nomura noted that unintended inventory buildup likely raised growth and growth will likely slow over the coming quarters.

Key Quotes:

“Topline growth largely in line with expectations Q3 GDP increased 3.5% q-o-q  saar, slightly below our forecast but above market expectations (Nomura: 3.7%, Consensus: 3.3%). Core PCE price inflation matched our expectation of 1.6% q-o-q  saar  in Q3, consistent with our medium-term inflation outlook. We maintain our forecast of 0.2% (0.155%) m-o-m  increase in the core PCE price index in September (1.965% y-o-y), scheduled for release on 29 October.

Most components of GDP were broadly in line with our expectations. Inventory accumulation contributed 2.1pp to topline growth, slightly below our expectation of a 2.5pp contribution, accounting for much of the discrepancy between our forecast and the release. The strong contribution from inventories implies growth in final sales of only 1.4%, down from 5.4% in Q2, suggesting some moderation in momentum.

Overall, the  release is consistent with our view that underlying economic growth sits somewhere around 3% but will likely slow over the coming quarters as fiscal stimulus fades. However, industry composition of export weakness and unintentional inventory accumulation suggests that growth was weaker than it appears in the Q3 figure of 3.5%.”