- by New Deal democrat
Because today is a travel day for me, I am going to keep my comments about the much-delayed Q3 GDP report brief.
As was obvious, a 4.3% annualized real GDP print is very good, as was the real final sales to domestic purchasers number. One of the comments I made repeatedly at the time, as the summer regional Fed reports came in, as well as the weekly consumer retail spending numbers, was that they were surprisingly good - probably reflecting a rebound from the weak spring numbers immediately after “Lbieration Day” tariffs. Basically I think the excellent GDP numbers reflect that.
As usual, my focus is on the more forward looking components of the GDP release: real private residential fixed investment (housing) and corporate profits.
The story in housing continued to be negative, as real private residential fixed investment declined -1.3% in the Quarter:
This means housing is down -15.3% from its 2021 peak, and -3.5% from its secondary peak in early 2024. And keep in mind that the best forecasting model is to deflate this metric by real GDP - and since there was strong improvement in real GDP in Q3, the relative decline is even worse.
The story on the second long leading indicator, corporate profits, was completely different, as they grew by a strong 4.2% after accounting for inventories to another new all-time record:
The bottom line: if the rear view mirror, coincident reading of Q3 GDP was very positive, the measures which forecast where the economy is headed in 2026 were mixed.
Keep in mind, though, this is a report covering July through September, i.e., 3 to 5 months ago. In other words, more stale data. We still have very little data from the period of the government shutdown months of October and November. On that score, manufacturers new durable goods orders for October were reported this morning. The headline number increased 0.5%, but the core capital goods number declined -2.2%:
The YoY trend for both remains in strong expansion, up 4.8% and 6.2% respectively:
I have been very concerned that the government shutdown may have tipped the economy into recession. The jobs numbers have certainly been recessionary. But the weekly consumer spending data has, contrarily, been very healthy. This morning’s two reports make it all but certain that there was no recession in Q3, and are the first -preliminary - positive indications that at least in the first month of the shutdown, the economy continued to make progress.
