- by New Deal democrat
As usual, I’ll take a quick look at this morning’s headline GDP numbers for Q3 before passing on to my more important focus on the release’s leading components.
Real GDP grew at a 2.8% annualized rate in Q3. Just like Q2, this is a perfectly good number in line with the past three years:
Stripping out inventories as well as imports and exports gives us real final sales to domestic purchasers, which grew 0.9% for the quarter or 3.8% annualized, also very healthy:
And the GDP deflator increased 0.4%, or at an annualized rate of 1.8%. This is a perfectly benign rate going back to the start of the Millennium:
While the coincident headlines were all very good, more importantly going forward, for the second quarter in a row, both of the long leading indicators contained within the GDP report declined.
First, private fixed residential investment as a share of GDP, a proxy for the housing market, declined both in nominal (blue, -1.8% q/q) and real (red, -2.0% q/q) comparisons:
This housing measure is back down just above its H1 2023 lows. While this doesn’t scream recession, both the generally flat trend of the past several years (with the supply chain tailwind now gone) and the back to back slight declines for two quarters in a row indicate a slight drag on the economy going forward.
Secondly, while nominally proprietor’s income, a proxy for corporate profits (which won’t be reported for another month), rose by 0.6%. After applying the GDP deflator, which came in at 0.4%, real proprietor’s income rose only 0.2%:
This isn’t negative, but it certainly is mediocre.
In summary, one of the two long leading indicators is negative for the economic outlook for 2025, while the other is neutral.
Continued resilient real consumer income and spending is keeping the economy growing in the present and short term future, but a few quarters out the two long leading components not consistent with any robust growth.
Because of the unique impact of the un-kinking of the supply chain issues in 2022 into early 2023, I haven’t comprehensively updated my look at long leading indicators in quiete a while. It looks like time to restart.
