US Q3 GDP revised higher to 2.1% on stronger inventories

In the second estimate of Q3 GDP, the BEA revised growth higher to 2.1% q/q saar from 1.5% previously, in line with forecast (2.1%) and consensus expectations (2.1%). The source of the upward revision was growth in private inventories, which were revised to $90.2bn versus $56.8bn in the advance estimate. As such, inventories now represent a 0.6pp drag on growth as opposed to 1.4pp as initially reported. Elsewhere in the report, stronger residential and nonresidential fixed investment was largely offset by a downward revision to net exports. Residential investment spending is now reported to have grown at a 7.3% pace, versus 6.1% previously, and nonresidential investment was revised modestly higher to 2.4% from 2.1% with upward revisions to equipment investment offset by weaker structures investment.

However, net exports widened to -544.1bn from -536.2bn previously, meaning net trade is now a 0.2pp drag on growth in the quarter. Personal consumption was revised modestly lower to 3.0% from 3.2% on weaker services consumption. Goods consumption was modestly stronger, but the upward revision was not sufficiently large to offset the downward revision to services consumption. Nevertheless, private consumption is up 3.2% y/y through Q3, the fifth consecutive quarter of 3.0% or better year-on-year growth, suggestive of ongoing momentum in household spending.

"The revisions to Q3 GDP came in as expected and do little to change the picture of solid domestic demand offset by weakness in trade and manufacturing. The upward revision to private inventory accumulation, in our view, raises the risk that manufacturing production has yet to fully adjust to the lower pace of sales. As such, the second estimate of Q3 GDP suggests that we may see a further slowdown in private inventory accumulation in Q4 and we will look to the incoming data to assess this trend", says Barclays.