Moments ago, the market was expecting Q3 GDP to print at 3.0%, and was pleasantly surprised when instead it got a 3.5% print, sending all risk assets kneejerk higher. However, a quick glance into the components revealed that things were certainly not as they seemed, with Personal Consumption in Q3 actually decreasing notably from Q2's 2.5%, to just 1.8% in Q3, below the 1.9% Expected, and accounting for 1.22% of the 3.54% Q3 GDP, the lowest Personal Consumption boost to GDP since Q2 2012 excluding the infamous Q1 winter vortex quarter.
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Some of the notable moves in Q3 GDP: Inventory, which was expected to boost GDP, was in fact a detractor, leading to a -0.57% net impact on the bottom line. This, however, was more than offset by net trade, which surged from Q2's -0.34% to 1.32% as Imports reversed for the first time since Q1 2013, meaning imports decline in Q3 suggesting a sharp slowdown in end demand in the US, which is also why inventories slid. One wonders just what all those PMI indices were looking at if domestic industries not only ground to a halt but reversed from Q2?
So what happened to boost Q2 GDP if that core driver, the US consumer was not there? Simple. Government stepped in, and stepped in hard, with its 0.83% boost to the bottom line GDP the highest since Q2 of 2009!
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In other words, the Fed, which yesterday had the advance GDP print in hand, decided to end QE on hopes Government spending would continue. And since government spending in this case was mostly a function of surging National Defense spending, it appears that Janet Yellen is strongly betting on, drumroll, war.
