US GDP Up 2% In Q3: 'Very Disappointing'

Investors got some disappointing news about the economic rebound Thursday when the U.S. Commerce Department reported third-quarter GDP growth that fell short of economist expectations.

What Happened? U.S. GDP grew just 2% in the third quarter, short of economist estimates of 2.8%. Third-quarter growth represented the slowest rate since the pandemic recovery began.

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Why It’s Important: The third-quarter headline number may seem discouragingly low, but it gives investors a clearer picture of just how much of an impact supply chain disruptions, labor shortages and the delta variant of COVID-19 had on the economy in the third quarter.

Consumer spending in the quarter was up just 1.6% from a year ago after gaining 12% in the second quarter. Spending on goods dropped 9.2% in the quarter, but services spending grew 7.9%.

The U.S. trade deficit also widened to a near-record $73.3 billion, weighing on growth.

The latest weekly jobless claims report on Thursday revealed just 281,000 claims for the week ending on Oct. 23, beating economist estimates of 289,000. It is also the lowest weekly total since the pandemic began.

“Amazingly inventory increases were responsible for the ENTIRE increase in growth,” economist and Harvard Professor Jason Furman tweeted.

“Some rebalancing in consumption as goods spending fell & service spending rose.”

Liz Ann Sonders, chief investment strategist at Charles Schwab Corporation SCHW, said auto industry numbers were particularly bad.

“Wheels came off: autos subtracted 2.4% from GDP in 3Q21 … worst contribution since 1980,” she tweeted.

The good news for investors is that economists are expecting a growth rebound in the fourth quarter. Economists are forecasting 5.3% GDP growth in the fourth quarter and 5.7% GDP growth for the full year, the strongest pace of U.S. economic growth since 1984.

The SPDR S&P 500 ETF Trust SPY traded slightly higher on Thursday morning as investors initially shrugged off the bad GDP report.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, called the report “very disappointing,” but said investors should keep it in perspective.

“As long as the re-opening continues and people go back to their offices, resume business travel (even if at lower than pre-2019 levels), and consumers maintain their spending patterns – all of which are reasonable assumptions and part of our base case – then the economy can continue to grow, and earnings growth can allow stocks to grow into their valuations,” Zaccarelli said.

Benzinga’s Take: The GDP number was certainly disappointing, but there was a perfect storm of temporary circumstances weighing on growth in the third quarter that should potentially improve in the fourth quarter and beyond.

The next major catalyst for the market and the economy could be the Federal Reserve asset purchase tapering plan, which it could reveal to investors as soon as November.