Net of inventory accumulation, real GDP for the third quarter was slightly negative, US government data released Thursday morning show. Real GDP grew at an annual rate of 2%, below the forecasters’ consensus of 2.6%, the Commerce Department reported. But a jump in inventories added 2.07 percentage points annualized to GDP. That’s more than the reported growth.
That’s a very odd number, considering that the inventory-to-sales ratio of US business stands at the lowest level on record, due to supply-chain constraints that prevent businesses from restocking. It’s likely that the inventory number was exaggerated. If that’s true, the US economy shrank during the third quarter.
The GDP measure of inflation rose at a 5.7% annual rate during the third quarter, following a 6.2% rate of increase during the second quarter. After inflation, final sales to domestic purchasers rose at an annual rate of just 1%. That’s a textbook portrait of stagflation.
Disposable personal income fell at a 0.7% annual rate, as prices outstripped income growth. By the Labor Department’s measure of prices and average wages, real earnings of US workers have fallen by about 2% over the past year despite nominal pay raises averaging about 4%.
Disposable personal income and fixed investment, including residential fixed investment, both fell slightly. The reported fall in residential investment knocked 0.38 percentage points off 3rd quarter growth, which means that the 20% annual rate of housing price inflation was higher than the rate of increase of home buying in terms of nominal dollars. Business investment also fell (except for the nebulous “intellectual property” category).
There are plenty of inflationary pressures still in the system. Freight volume is unchanged from 2019, according to the authoritative CASS index, while the cost of shipping is up 50%. Home prices continued to rise at a 20% annual rate in September, according to the S&P Case-Shiller Index. Used car prices continue to soar in October, up 8.3% at mid-month on the Manheim Index, and 37% higher than a year ago. Energy and food prices continue to rise.
Altogether, the available data show the United States dead in the water, with inflation eating up all the demand stimulus that the government poured into the post-Covid economy. And all the price indicators suggest that it is getting worse.