**MNI 5 THINGS: US Q3 GDP Above-Expected At +3.5%>

--5 Things We Learned From The Q3 GDP Data

By Kevin Kastner, Shikha Dave, and Harrison Clarke

     WASHINGTON (MNI) - The following are the key points from the 

advance third quarter GDP data released Friday by the Bureau of 

Economic Analysis:

     - The third quarter GDP data suggest slower, but still solid, 

growth, with GDP up 3.5%, slightly above analysts' expectations for a 

3.3% rise. GDP rose 4.2% in the second quarter. The components mix was 

exactly as analysts had predicted, with a much wider net export gap 

offsetting a rebound in inventories. The core PCE price index posted a 

smaller gain in the second quarter than in the previous quarter, but 

ticked up to +2.0% y/y vs +1.9% y/y in the second quarter, now in line 

with the FOMC's target. The BEA said it could not estimate the overall 

impact of Hurricane Florence. 

     - Real final sales of domestic product were up only 1.4% in the 

third quarter when the sharp rebound in inventories was removed. This 

was a much smaller rise than the 5.4% gain in the second quarter. Final 

sales to domestic purchasers were up 3.1% after a 4.0% gain in the 

second quarter. 

     - The slower GDP pace, compared to the previous quarter, was due 

primarily to an expected reversal in net exports (-$939.0%, -1.78pp 

contribution vs +1.22pp in Q2), the largest negative contribution since 

Q2 1985. Additionally, there was a smaller contribution from 

nonresidential fixed investment (+0.12pp vs +1.15pp) and a larger drag 

from residential fixed investment (-0.16pp vs -0.05pp). Offsetting these 

were a sharp rebound in inventories (+2.07pp vs -1.17pp) and stronger 

contributions from PCE (+2.69pp vs +2.57pp) and government spending 

(+0.56pp vs +0.43pp). 

     - The chain price index rose 1.7% in the third quarter, slightly 

below the 1.9% gain expected and following a 3.0% rise in the second 

quarter. The closely-watched core PCE price index slowed to a 1.6% rise 

in the third quarter after a 2.1% rise in the second quarter. However, 

the year/year rate rose to +2.0% in the third quarter from +1.9% in the 

previous quarter. 

     - The FOMC's SEP released at its September meeting suggested 3.1% 

GDP growth in 2018, while growth through the first three quarters has 

averaged 3.3% at an annual rate. Analysts usually vary widely on their 

forecasts for advance GDP, but not as wide as the gap among the various 

GDP nowcasts. The NY Fed forecast was for a 2.1% third quarter gain, 

while the St. Louis Fed forecast a 4.4% increase in their forecast. The 

Atlanta Fed's forecast, which was the most recently updated, stood at 

3.6%, the most accurate. 

     ** MNI Washington Bureau: 202-371-2121 ** 

[TOPICS: MAUDS$,M$U$$$,MAUDR$]