Third quarter U.S. GDP “surprised” on the upside, rising 2.8% in the third quarter, and topping estimates of 2%, according to Bank of America-Merrill Lynch (BAC).
But inventories added just 0.8 percentage points to this growth in the quarter, and real final sales were 2%, Merrill economists explain in a recent report.
“In other words, the economy remains stuck in the mud,” wrote Joshua Dennerlein and Ethan Harris in their latest analysis. “We believe that the Fed needs to see acceleration in growth before they will begin tapering.”
Moreover, the experts say we’re currently in “a tale of two consumers.”
“Overall consumer spending growth was 1.5% [quarter over quarter at a seasonally adjusted annual rate], marking the smallest increase in two years,” they noted. “There is a big divide in what the consumer is buying.”
Growth in purchases of goods, like cars and TVs, were a “very strong” 4.3%. However, spending on services (including those in the financial sector) was up a “very soft” 0.1%, the smallest increase since the recession began, the report says.
Business Reluctance