Q3 GDP grew at an annualized rate of +3.5% q/q, in line with expectations. The y/y rate is now +3.0%, the fastest in four years, and the consumer posted a second strong quarter at +4.0%, after +3.8% in Q2. But there were some downsides as well: +2.0% of the +3.5% headline gain came from the largest increase in inventories in seven years; net exports knocked -1.8% off the headline, the most in 33 years as imports surged +9.1% while exports shrank -3.5%; business investment grew only +0.8% after six quarters averaging +7.6%, and residential investment fell -4.0%, the third straight loss. Turning to September data, PCE core inflation remains at the Fed’s +2% y/y target. Real personal disposable income slipped from +3.0% y/y to +2.9%, and real consumption fell from +3.2% to +3.0%. But consumer confidence rose for the fourth straight month, gaining +2.6 points to 137.9, the highest in 18 years. Both the present situation and expectations components rose to near 18-year highs as well. Overall, the economy still appears solid despite some disappointing data.
