US GDP grew at a 3.5% seasonally adjusted annual rate in the third quarter, beating analyst expectations.
This is the first measure of growth for the US economy since Q2 2008.
The GDP figure solidifies our view we're already in a bull market and the economy is just catching up—a good sign for the sustainability of the current market trend.
There was no spooking the economy this Halloween—today's GDP report was full of treats and pleasantly devoid of tricks. The Commerce Department announced Thursday US GDP grew at a 3.5% seasonally adjusted annual rate in the third quarter, beating analyst expectations. That number will be restated twice (as it always is), but one thing is clear: Fears just months ago of a new "Great Depression" are being proven overwrought. Stocks have been telling us as much since March.
This is the first measure of growth for the US economy since Q2 2008. Unofficially, a strongly positive GDP reading marks the end of the recession, but the official end date, set by the National Bureau of Economic Research (NBER), typically doesn't come until months after the actual recessionary period ends.
Growth was broad-based, with many contributing components—including some unexpected positives. After falling -0.9% in Q2, consumer spending rose 3.4% in Q3—led by a 22.3% rise in durable goods alone (helped some by "Cash for Clunkers"). Residential real estate investment rose 23.4%—a major surprise and an indication there may be light ahead for the housing industry. Commercial real estate, feared by many as the "next shoe to drop," only fell -2.5% this quarter for an overall -0.24% contribution to GDP—very small.
Some headlines today claim the growth is due only to stimulus efforts—without that government spending, we'd still be in big trouble. Fair enough, but "Government Expenditures and Investments" contributed just 0.48% to GDP growth. With a large portion of stimulus funds still pending, there's significant potential for future growth in this category and further sustainability for the recovery.
There's even positivity in the largest negative contributor—net exports pulled GDP down -0.53%. This decline was due solely to a 16.4% jump in imports, which is calculated as a detractor from US GDP. Taking a global view, this reading—coupled with a 14.7% rise in exports—is an encouraging sign of global economic recovery. Productivity outside our borders, as indicated by rising absolute trade levels, shouldn't be viewed as negative.
In all, a very pleasantly surprising quarter for growth. But keep in mind, it's likely after such huge gains, many of these categories may have more tempered growth in the quarter ahead. Today's reading doesn't flip a switch, and all components of an economy don't move in lockstep—some will lag, perhaps for a while. GDP could even dip back into the red next quarter—but that doesn't necessarily spell doom for stocks. This quarter's positive reading solidifies our view we're already in a bull market and not a massive bear market correction. Stocks price in the future, so as the rally continues it's increasingly likely GDP will continue recovering too.
All seasonally adjusted annual rates and contribution numbers taken from GDP report at www.bea.gov