BEA Estimates 3rd Quarter 2016 GDP Growth To Be 2.91% - October 28, 2016

Summary and Commentary 

The headline number proclaims a miraculous return to a (nearly) "normal and healthy" 3% annualized growth rate. And luckily just in the nick of time -- mere days before the next Presidential election. 

As pleasant as a rousing chorus of "Happy Days are Here Again" may be, a rational person might notice several cautionary items in the report 

-- The prior quarter's growth in consumer spending took a major hit (it was nearly halved). This finding is consistent with most consumer sentiment surveys, and it is plausibly a consequence of the continued weak growth in disposable income. 

-- It is possible that the "fear, uncertainty and doubt" (FUD) surrounding an especially uncivil election campaign contributed to consumer sentiments and the spending malaise. If so, that trend has certainly extended into the current quarter as well. 

-- It is plausible that massive political media buys displaced normal commercial advertising in ways that impacted consumer spending. 

-- Although the BEA is really proud of their "seasonal adjustments," somehow the highly predictable (pre-election) Federal fiscal year-end spending shenanigans completely escapes them. This momentary "growth" in Federal spending has merely been brought forward from the 4Q-2016. 

-- Most of the quarter-to-quarter improvements in the contributions to the headline number came from two especially noisy line items: inventories and exports. These line items are susceptible to significant distortions/anomalies caused by commodity price and currency swings -- even as physical inventories or export transactions are relatively unchanged. 

-- It could be argued that inventory growth after five consecutive quarters of contraction was simply an overdue reversion to a zero-sum trend line. Or, alternately, that they are just another indication of weakening end consumer demand. 

-- The BEA's own "bottom line" growth metric weakened on a quarter-to-quarter basis. 

We suggest that a more cynical view of this miraculous recovery might be warranted. 

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