The Bureau of Economic Analysis is set to release the first calculation of the third-quarter US Gross Domestic Product on October 26th. Bloomberg forecasts indicate a significant increase over the second quarter’s 2.1% growth, with the mean projection for the release being 3.4%. The Federal Reserve Bank of Atlanta’s GDPNow estimate is 5.4 percent, which would represent a 62% jump over the second-quarter reading and a 157% leap for the Atlanta Fed. If the GDP number is 4.5 percent or higher, it would be the highest quarterly return since the late 2020-2021 recovery from pandemic policies.
However, a quarterly GDP result higher than 4% has not been seen since the third quarter of 2019. The strength of the GDP could be attributed to policy, random economic interactions at micro, meso, and macro levels, and whether the bounce in GDP signifies a return to robust economic output or a capricious surge. The US economy is expected to see a strong third-quarter GDP number due to several factors, including consumer spending, private inventories, exports and imports, and taxpayer-provided subsidies.
However, if the bottom line GDP number is not indicative of a renewed economic growth, it may not be indicative of a renewal of strong economic growth. The balance of US exports and imports is volatile, with a stronger dollar since July 2023 dragging on exports and increasing import marketability. Private nonresidential fixed investment, which was the other major contributor to the prior GDP release, is likely to play a significant role in tomorrow’s GDP number.
The remaining factors are fickle, with consumers still spending, borrowing at rates not seen in 40 years, and facing contracting credit and the return of student loan payments. The end of federal child care subsidies and high mortgage rates are causing spending challenges. American consumption is impressive but unsustainable. Private inventories may be sold or reduced after labor activism subsides. Government spending is expected to remain consistent from Q2 to Q3.
A strong third-quarter US GDP number is expected to send Treasury bond yields up in anticipation of another rate hike, potentially dragging the 10-year note back above 5%. The Fed is expected to intensify its contractionary policy bias if the predicted GDP increase of 4% or more is not due to the economic policies of the Biden administration.
The current administration has made efforts to distance themselves from two quarters of contracting GDP in 2022, but US citizens, consumers, savers, investors, and businesspeople will benefit more from scrutinizing and taking note of any ensuing political self-aggrandizement. Forthcoming GDP releases may require reminding administration officials of statements made tomorrow regarding the achievements and prospects of “Bidenomics.”