Author: David I. Templeton, CFA, Principal and Portfolio Manager
Thursday's GDP report provided some support to our post earlier this week noting economic growth stalled in the third quarter. In that earlier post, I noted the Atlanta Fed's GDPNow forecast was indicating .2% real GDP growth in Q3 2021, while today's advance GDP number came in at 2%.
There are a number of inputs into the GDP calculation, but looking under the surface of the report itself shows the percentage change in private inventories equaled a large 2.07%. In other words, inventory build accounted for all of the reported growth in GDP.
Consumer's desire to spend in order to satisfy pent-up demand has resulted in below normal levels of business inventories leading to business restocking. However, higher prices may be resulting in consumers pushing back on the higher price levels as well, which is resulting in some inventory build up.
Time will tell, but the economy seems to have hit a soft spot in the third quarter. Some of the softness is being attributed to the headwind from the COVID-19 'delta variant', which now appears to be waning. The economy is in the important fourth quarter spending period and supply chain bottlenecks remain a headwind. In summary, consumers satisfying pent-up demand is a powerful force, but if product supply is limited or high prices act as a deterrent, further economic weakness might be realized in Q4.
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