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.

3Q18 GDP Growth Off Slightly From 2Q18, Final Demand Off More

Real GDP grew at a 3.5% rate in 3Q18, with the GDP deflator showing 1.4% inflation, so that nominal GDP grew at an annualized rate of 4.9%. Consumer spending grew nicely in the quarter, up at a 4.0% rate. However, the real factor driving good 3Q18 growth was inventories, which rose strongly and contributed 2.1% of the total GDP growth. In other words, real final sales—or real final demand—that is, GDP excluding inventories, rose at a 1.4% pace.

The 3.5% 3Q18 GDP growth was down slightly from the 4.2% pace of 2Q18. The real final demand growth of 1.4% was down sharply from a rate of 5.4% in 2Q18.

On the negative side, the foreign trade balance swung sharply downward in 3Q18. Foreign trade had provided a +1.2% boost to GDP growth in 2Q18, but it contributed a -1.8% drag on growth in 3Q18, for a -3.0% swing.

This is the major reason we would downplay the growth in consumer spending. For most of the last five years, consumer demand has grown nicely, but much or most of that growth has gone to imports. This changed starting in 2Q17 and through 2Q18, when the drags from trade waned then turned into a large 2Q18 boost. With the deterioration in 3Q18, the trade balance is all the way back to the declining trend that had been in place through early-2017.

Whether the recent deterioration in trade is a result of Mr. Trump’s trade war or merely a reversion to trend following a (spurious) swing in previous quarters is a great question. The more relevant question is how trade will "flow" going forward.

That is, despite better capital spending and sporadically better consumption seen lately, the main factor boosting GDP has been the improvement in foreign trade relative to previous trends. If those adverse "previous" trends are back in place, it will be awfully hard for GDP growth to sustain anything better than 2.0%-2.5% growth. Inventories propped up growth in 3Q18, but it is hard to see inventories contributing thus going forward.

Meanwhile, GDP deflator inflation is back at the 1.5% plus/minus rate holding prior to the recent oil price bounce. We think that can continue.

Growth in Real GDP Versus Final Demand
Growth in Real GDP Versus Final Demand
Source: Bureau of Economic Analysis. As of 30 Sep 18

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 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 2022. 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 authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. 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”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.