US GDP still fueled by fiscal sugar high

Macro 2 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary:  Friday's US GDP release was likely a net positive for the Trump administration as we head into the midterm elections, with the economy looking robust save for a slowdown in real estate and the automotive sector.


We got a first look at Q3 US GDP Friday. Not all the September data has been published yet and we know this figure will be revised at least four or five times but the market does not care much about future updates and always reacts as if this first release is the final word. The initial market reaction was rather positive considering the ongoing turmoil with USD marginally higher in the immediate aftermath.

GDP growth came in at 3.5% at an annualised pace in the third quarter, slightly above Wall Street’s consensus of 3.4%. The only disappointing data was the core CPE that came in way below consensus at 1.6% versus 1.8% expected. Digging into details, the increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption (+4.0%), stocks, and government spending that were partially offset by a negative contribution from net exports of goods and services. This confirms that the ongoing fiscal stimulus is still pushing higher the domestic economic momentum but that there is a drag from net exports which reflects the negative impact of the US-led trade war.

Overall, this is rather a solid print for President Trump and the Republicans ahead of the midterm elections. Excluding the slowdown in the real estate sector and in auto sales, the economy is quite strong in the third quarter.
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