GDP rises in Q3, but the goods transport economy fades
The U.S. economy grew in the third quarter after two straight quarters of declines, according to the initial estimate of real Gross Domestic Product (GDP) from the Bureau of Economic Analysis. Real GDP increased 2.6% quarter over quarter (q/q) on a seasonally adjusted annualized basis. The gain followed decreases of 1.6% in Q1 and 0.6% in Q2. The GDP increase reflected gains in exports, consumer spending, nonresidential fixed investment, and government spending. Imports declined, which also boosted GDP as imports are a negative contribution to GDP. Partially offsetting those positive contributions were decreases in residential fixed investment and private inventory investment. Although the U.S. economy expanded in Q3, the gains largely came in areas that did not support freight activity. While overall consumer spending rose, the strength was in spending on services. Real spending on goods declined, led by motor vehicles and parts and food and beverages. The decline in imports helped GDP, but it was a negative for freight transportation.
The GDP Goods Transport Sector – FTR’s term for the portion of the economy linked to goods transportation – declined 3.1% annualized in Q3 following a 4.0% decrease in Q2. The only positive contributions to GDP Goods Transport were exports and business investment in equipment. One arguable upside to weaker inventory investment for GDP Goods Transport is that it lessens the potential downside pressure on freight demand in the near term as it reduces the chances of an inventory correction. The latest data on both GDP and GDP Goods Transport reflect an annual update by BEA in late September. In general, the revised data indicates that the 2020Q2 contraction was not quite as severe as initially seen and that the 2020Q3 rebound was slightly stronger than previously estimated.
Orders of durable manufactured goods
New orders for durable manufactured goods in-creased 0.4%, seasonally adjusted, in September, but the gains were centered in two sectors: Civilian aircraft and motor vehicles and parts. Excluding transportation equipment, new orders fell 0.5%, which is the largest m/m decrease since the April 2020 contraction.
New orders for core capital goods – nondefense capital goods excluding aircraft – fell 0.7%, which is the largest decrease since May 2021. Total new orders in September were 18.7% above the pre-pandemic month of February 2020. New orders excluding transportation equipment were 19.4% higher, and new orders for core capital goods were up 22.1%.
The Census Bureau data is not adjusted for pricing, so the comparisons relative to pre-pandemic levels almost certainly are inflated. However, as pricing for key industrial commodities has eased recently, it also is possible that the m/m declines in new orders reflect some price deflation.
Consumer spending
Real consumer spending increased 0.3%, season-ally adjusted, in September. In an unusual occurrence recently, spending on goods outpaced spending on services, albeit only slightly. Real spending on goods increased 0.4% while real spending on services was up 0.3%. Within goods spending, the strength was in non-durables, which saw spending rise 0.6% – the strongest m/m increase since one of the same degree a year earlier. Durable goods spending ticked up 0.1% after declining 0.3% in August.
The savings rate continues to be a concern for spending in the months ahead. Aside from the 3.0% rate in June, the 3.1% savings rate in September was the lowest since April 2008. However, Federal Reserve data on household finances indicates that consumer cash reserves remain high and consumer debt levels are still quite low due to the extraordinary level of government stimulus in 2020 and 2021.
Mortgage rates
Mortgage rates topped 7% in the latest week for the first time in more than 20 years. The rate on a 30-year fixed-rate mortgage was 7.08%, which is the highest since April 2002, according to data from Freddie Mac.
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