Summary: US GDP up 0.6% (2.6% annualised) in September quarter, essentially in line with expectations; confirms deceleration in private domestic demand; GDP price deflator annual rate falls from 7.6% to 7.1%.
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 which lasted until 2022.
The US Bureau of Economic Analysis has now released the September quarter’s “advance” GDP estimates and they indicate the US economy expanded by 0.6% or at an annualised rate of 2.6%. The expansion was essentially in line with the 0.6% increase (2.3% annualised) which had been generally expected but in contrast with the June quarter’s -0.1% after revisions.
ANZ economist Jack Chambers said the details of the report “confirmed a deceleration in private domestic demand…This is the main driver of GDP and has been moderating for five quarters now, following the economy’s reopening.”
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 fell on the day, especially at the short end of the yield curve. By the close of business, the 2-year Treasury bond yield had shed 13bps to 4.29%, the 10-year yield had lost 8bps to 3.92% while the 30-year yield finished 6bps lower at 4.08%.
In terms of US Fed policy, expectations for a higher federal funds rate over the next 12 months softened. At the close of business, November contracts implied an effective federal funds rate of 3.785%, 70bps higher than the current spot rate while December contracts implied 4.15%. May 2023 futures contracts implied an effective federal funds rate of 4.805% and November 2023 contracts implied 4.46%.
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 fell from the June quarter’s revised figure of 7.6% to 7.1%.
