The growth rate of US GDP appeared to be higher than expected in 3Q advancing to a three-year high. The main drivers of growth were spending on equipment and the accumulation of inventories. The last trend indicates that firms are preparing for the strengthening of consumer demand, i.е. expect further economic rebound what is a good sign. GDP grew 3.3% in the third quarter, surpassing the forecast of 3% due to the growth in public spending showed a revised report of the Ministry of Commerce. In the second quarter, the economy grew by 3.1%.
Nevertheless, the growth in inventories accounted for a quarter of the total expansion of 3.3%, which creates deferred risks for the economy, as these goods will still need to be sold. GDP calculated on income grew by only 2.5%.
On the consumer front, the growth rate fell to 2.3% falling short of 2.5% estimate. The growth of the main component of the US economy was limited by the consequences of hurricanes Harvey and Irma, as well as by the far from an impressive growth of salaries, which probably caused the population to spend more savings. In general, consumption in the United States is now sending mixed signals – on the one hand, a sharp drop in the savings rate in the third quarter to 3.5%, together with extremely high consumer confidence says that the population is making up good hopes for the future. But it can also build the illusion of economic recovery, when in fact households dip deeper into their pockets, not from a better life.
Sometimes it is useful to compare this with the situation before the mortgage crisis of 2007:
But this time FED, taught by bitter experience is calm and assures everyone, according to Yellen, in a «comprehensive” pickup, so there is no cause for concern.
The market remains moderately optimistic about the fiscal push from the Republican tax reform since the main beneficiaries of the reform – “firms” will receive a tax discount of 15% only in 2019. The effect of tax cuts on the population will be determined by their inflationary expectations and propensity to consume. While inflation is quite hampered the easing of tax burden may not please economists at once.
According to Trump, the tax reform will make it possible to raise GDP on a stable trajectory of 3%. The fiscal impulse will have just the economy with full employment, which can be a headache for the FED, trying to spur inflation, but without missing its uncontrolled acceleration.
The Dollar rose slightly above the level of 93.00, leaving attempts to develop bullish retracement, despite tangible progress by Republicans in promoting the reform. Today, the Senate is scheduled to vote on the reform and the Dollar is likely to continue to fall because the soft reform is unlikely to be surprising for markets. The nearest target for the index is level 92.50.
OPEC might punish itself.
Prices above $60 and the market space that OPEC wants to free for its American competitors may entail a surge in production of the latter. From this point of view, prices can retrace and go below $60 per barrel in the medium term. There is almost no doubt that OPEC and the partners of the cartel, including Russia, will continue to produce 1.8M barrels less by the end of 2018, and the focus will shift to the potential for production growth in the US. After extension of the agreement, one should expect a high sensitivity of oil prices to US statistics, in particular for commercial reserves, since there will be nothing to expect from OPEC, except news of commitment to the agreement.