Surprising GDP strength in Q3 as consumers spend $100.1 billion more than their falling income. Defense spending jumps 10.2%. The current household savings plunge is just plain scary.
Lloyd Wood
Director of Membership and Media Outreach
American Manufacturing Trade Action Coalition (AMTAC)
910 16th ST NW
STE 760
Washington, DC 20006
(202) 452-0866
(202) 452-0739 -- fax
lwood@amtacdc.org
www.amtacdc.org
Today's BEA advance report of surprising, annualized real growth of 3.8% in Q3, up from 3.3% in Q2, also illuminates the unsustainable difficulties for consumer spending and growth.
The purchasing power of total disposable income declined in Q3 to $8.11 trillion from $8.13 trillion in Q2. Real consumer spending rose at a seemingly healthy 3.9% annualized rate in Q3 only because consumers spent $100.1 billion more than their current incomes - including all retirement savings. The current household savings' rate fell to -1.1% "dis-savings" in Q3, the first quarterly dis-savings rate on record and certainly the worst since the banking crisis of 1933. The savings rate in Q2 was just 0.1%, previously the lowest quarterly rate on record.
GDP growth in Q3 was also boosted by an unexpected 10.2% jump in Federal Defense spending, contributing 0.5% of the overall 3.8% GDP growth.
Although the nominal US trade deficit worsened significantly in July and August, the BEA's calculations indicate an improvement in the real trade deficit, contributing slightly to Q3 growth.
Key hurricane-affected data for September will be released in coming weeks and could require more than the usual revisions to today's advance report. Still, the size of anticipated dis-savings and falling real incomes in Q3 suggest a unique and difficult period of perhaps sharply decelerating consumer spending and economic growth ahead.
Best,
CWM
(attachments for historic factors of GDP and consumer savings and debt)
Savings PDF
GDP PDF
Charles W. McMillion, Ph.D.
President & Chief Economist
MBG Information Services
Washington, DC 20002-4928
Voice: (202) 544-6490
Mobile: (202) 257-9802
Fax: (202) 546-1446
www.mbginfosvcs.com
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