Real GDP for 3Q23 came in 1.3% above our forecast average. Personal Consumption Expenditures for Household Services fueled much of the growth, followed by consumers buying goods, particularly durable goods, within the realm of consumer spending. Driving more of the ascent than the consumption of goods was the increase in non-farm inventories. The increase in inventories is likely not a positive sign for manufacturing and distribution heading into the fourth quarter. Federal and State & Local Government spending was providing a noteworthy boost to GDP as well.
In addition to the rise in inventories, we are concerned about the decline in fixed investment in equipment. The weakness in this part of the economy is consistent with the weakness in corporate profits we have mentioned in various forums.
While we can appreciate what a growing GDP meant in 3Q23, a part of us is concerned that this may give the more hawkish Fed FOMC members the fuel they need to raise interest rates before the end of this year.
What does all of the above mean for our outlook for 2024? Based on all the forward-looking inputs at our disposal, we are maintaining our outlook for two non-consecutive quarters of decline in Real GDP in 2024.
Watch for our CEO Insights blog next week for more details on the Real GDP breakdown and for additional context.