The BEA estimated that GDP in Q3 accelerated to 2.8% over Q2 2013, coincidentally matching the Q/Q growth rate from Q3 2012 (more on that in a moment). The largest “boosts” to GDP came from tumbling imports and growing inventories. Those two segments accounted for 1.2% in additional “growth” over Q2.

While inventories rose and consumers and businesses bought less from foreign sources, they also bought fewer goods and services domestically. The all-important consumer registered the lowest gain in PCE since 2011. Interestingly, nearly all of that was due to the imputation of housing-related expenses.


Business investment was not any better, as non-residential investment in equipment fell almost 4% from Q2.

ABOOK Nov 2013 GDP Nonres Inv

Business investment continues to be alarmingly weak, even compared with the lackluster period before the mid-2012 slowdown. That would confirm the data for capex we see coming out of the durable goods/factory orders reports, as well as the anecdotes from tech equipment company earnings releases.

The end result of all this accounting is the same picture of the private economy that emerged in the middle of last year. Each measure of private demand and supply activity (real final sales) continues to show recessionary levels of activity (after having never really recovered from the Great Recession).

ABOOK Nov 2013 GDP Final Sales of Domestic ProductABOOK Nov 2013 GDP Final Sales to Domestic Purchasers

As to the factors prompting the economic accounting, as noted above, non-farm inventories are driving activity at the margins. The increase in inventories in the latest quarter seems to confirm the ISM interpretation I laid out last week. The margins of the economy, in the goods sector, are being driven by the holiday season (more specifically, anticipation of it).

ABOOK Nov 2013 GDP Nonfarm Inventories

The same pattern appears to be playing out for the second consecutive calendar year leading into the holiday quarter. There is a relatively (for this era) large inventory build/accumulation through the back-to-school period that leads into the Christmas shopping season. For 2012, that was a highly disappointing result, as excess inventory severely depressed the economy into the early part of 2013. That showed up in nearly every economic sector beyond inventories.

This would also seem to confirm the WalMart narrative from September, in that retailers at that time were growing more and more uncomfortable with inventory levels as they related to incoming sales data and expectations for the holiday season. That would seem to suggest a similar inventory-driven decline setting up for Q4.

Finally, while Q/Q GDP accelerated, Y/Y did not. In fact, Y/Y GDP growth has been curiously stuck down at 3.1% for three consecutive quarters. In terms of our stall speed expectations, it appears that the economy has remained below the stall speed threshold for all of 2013 to this point, despite the heavy application of policy “stimulus.”

ABOOK Nov 2013 GDP 4tr

Perhaps there is hope that Q4 picks up enough to change the entire trajectory away from both stall speed and the possible inventory disappointment, but current indications (particularly housing-related) are not moving in that direction. In short, this year looks a lot like last year, except at an even lower absolute level. That would certainly explain the conspicuous lack of a robust labor market.


Click here to sign up for our free weekly e-newsletter.

“Wealth preservation and accumulation through thoughtful investing.”

For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, contact us at: or 561-686-6844 . You can also book an appointment for a free, no-obligation consultation using our contact form.