Summary: US GDP up 0.5% (2.0% annualised) in September quarter, less than 2.5% expected; “sharp” slowdown in personal consumption; GDP price deflator annual rate rises from 4% to 4.5%.
US GDP growth slowed in the second quarter of 2019 before stabilising at about 0.5% per quarter. At the same time, US bond yields suggested future growth rates would be below trend. The US Fed agreed and it reduced its federal funds range three times in the second half of 2019. Pandemic restrictions in the June quarter of 2020 sent parts of the US economy into hibernation; the lifting of those same restrictions sparked a rapid recovery.
The US Bureau of Economic Analysis has now released September quarter “advance” GDP estimates and they indicate the US economy expanded by 0.5% or at an annualised growth rate of 2.0%. The figure was much less than the +2.5% (+10.4% annualised) which had been generally expected as well as the June quarter’s 1.6% expansion after revisions.
“The slowdown was largely attributed to a sharp slowdown in personal consumption, which grew at just a 1.6% pace after a rapid 12% jump in the prior period,” said NAB economist Rodrigo Catril. He put this down to supply bottlenecks, rising prices and spreading COVID infections.
US GDP numbers are published in a manner which is different to most other countries; quarterly figures are compounded to give an annualised figure. In countries such as Australia and the UK, an annual figure is calculated by taking the latest number and comparing it with the figure from the same period in the previous year. The diagram above shows US GDP once it has been expressed in the normal manner, as well as the annualised figure.
US Treasury bond yields moved a modestly lower at the short end but somewhat higher at the long end on the day. By the end of it, the 2-year Treasury bond yield had lost 2bps to 0.48% while 10-year and 30-year yields each finished 3bps higher at 1.58% and 1.98% respectively.
In terms of US Fed policy, expectations of any change in the federal funds rate over the next 12 months hardened slightly in favour of earlier rate rises. Federal funds futures contracts for October 2022 implied an effective federal funds rate of 0.46%, 38bps above the current spot rate.
One part of the report which is often overlooked are the figures regarding the GDP price deflator, which is another measure of inflation. The GDP price deflator is restricted to new, domestically-produced goods and services and it is not based on a fixed basket as is the case for the consumer price index (CPI). The annual rate rose from the June quarter’s revised figure of 4.0% to 4.5%.