skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.


GDP Outperforms Again in 3Q19 Thanks to Reported Surge in Motor Vehicles

The U.S. Department of Commerce reported today that real GDP grew at a 1.9% annualized rate in 3Q19. While this pace is something of a comedown from the 3.1% and 2.0% reported growth rates for 1Q19 and 2Q19, respectively—and 2.5% for all of 2018—it is way above expectations on Wall Street, where forecasts clustered just above 1%.

Relative to expectations, the biggest surprise came from the motor vehicles sector. Vehicle GDP was reported growing at a staggering 32.6% annualized rate. Most monthly data indicators had shown some 3Q19 growth in the vehicles sector. Apparently, automakers had elevated production early in the quarter in anticipation of a labor strike. (Nearly half of the reported gain in vehicle GDP came from inventories.)

Still, the monthly data indicators had suggested much less buoyant growth for vehicles output. Thus, the Federal Reserve’s (Fed) measure of industrial production (IP) in the motor vehicle sector showed a 6.2% annualized rate of increase in 3Q19. While a good gain, this was nothing like what was reported for the sector within GDP.

In terms of its effect on total GDP, if vehicles had shown the same output growth within the GDP data as they did within the IP data, total GDP growth would have been only 1.2%, right in line with expectations. So, it is fair to say that the surprise within vehicles GDP accounted for essentially all the surprise in total GDP. It is not unusual for the GDP data to be giving different signals from what the monthly data are suggesting. Actually, that has been going on all this year. Still, the magnitude of surprise within this one sector in 3Q19 is jolting.

Elsewhere within the data, consumer spending showed another nice gain, with total real consumption up at a 2.9% annualized rate and with the same growth rate for consumption excluding motor vehicles. (Again, the "heavy lifting" for vehicle sector GDP came from inventories.) Goods consumption was a bit below expectations, with services consumption an equal bit above.

Much has been made in the financial press and in the markets of a supposedly sudden weakening in the factory sector in August and September. Yet, total real goods GDP was reported growing at a strong 4.6% rate, and even excluding vehicles, the goods sector GDP grew at a 2.0%. In other words, for the factory sector as for Mark Twain, reports of demise have been greatly exaggerated.

The accompanying chart shows four-quarter average growth rates for real and nominal GDP across the expansion, and it summarizes the situation well. Real growth has cooled from the upturn of 2017-18, but appears to be settling at a pace much like that seen through most of the expansion. Nominal GDP growth is firmly anchored at 4% or less. Regardless of what the unemployment rate does, we simply are NOT going to get an acceleration in inflation when total spending is growing so moderately and so steadily.

So, while much of the financial press is telling a Chicken Little story (the sky is falling), the actual data are more Goldilocks (not too hot, not too cold).

Real GDP Growth
Real GDP Growth
Source: Bureau of Economic Analysis. As of 30 Sep 19

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.