GDP grew at a 2.6% annual rate in 3Q22, led by a 2.77 percentage point contribution from net exports. Personal consumption expenditures added 0.97, which was a rate of change slowdown from the prior quarter and versus 3Q21. Government spending added 0.42 points, its first positive contribution since 1Q21.
Exports jumped 14.4% q/q while imports fell -6.9%. Net exports positive contribution to GDP in the last quarter was the most since 1980 and the sixth largest on record. We expect exports to likely decline if global economic activity slows and imports will likely remain low if consumer demand remains weak. This dynamic would result in net exports having less of a positive impact, if not negative impact, on 4Q22 GDP.
Weakness on the consumer side will also likely be a drag on growth in 4Q22. The personal savings rate is currently at levels last seen during the Great Financial Crisis and personal income has not kept up with the pace of inflation. That setup will likely lead to a further slowdown in personal consumption expenditures over at least the next quarter.
Other key growth components are also not showing signs of improvement. Residential fixed investment decelerated -26.4% in 3Q22, marking its sixth consecutive negative quarter. This weighed on the total gross private domestic investment, which subtracted -1.59 points from the headline. Also, the change in private inventories made another negative contribution to GDP. On a y/y basis, the contribution from inventories moved more than 120 basis points lower from +1.96 points in 3Q21 to -0.70 points in 3Q22.
Looking ahead to the hand-off to 4Q22, business sentiment remained at weak levels in October. The S&P Global US Composite PMI declined to 47.3 from 49.5, now in contractionary territory for the fourth month in a row. Manufacturing declined 1.6 points to 50.4, its lowest level since June 2020 as the economy was rebounding from the pandemic lows. Services declined to 46.6 from 49.3, also its fourth consecutive month in contractionary territory.
Despite an acceleration in the headline GDP number, the key components listed above did not improve. Critically, the consumer is not in a better position heading into the fourth quarter and business sentiment remains weak.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Economic Analyst
Boyd Watterson Asset Management, LLC