3.6% Q3 real GDP growth rate, but ...

Second Q3 '13 real GDP annualized growth rate estimate came in at 3.6%, much higher than our 2.9% guesstimate and the Street's 3.1%.  S&P 500 did not react positively to such news as it closed down 0.43% for the day.

After looking at the details of the GDP report, we realized that things may not be as rosy as initially thought.

• PCE, on which the US economy is significantly dependent, grew but only at an annualized rate of 0.96%; first time below 1.00% since Q4 '09.  PCE grew at a 1.15% rate in Q3 last year.
• Gross private domestic investment grew 2.49%; however it was helped by a 1.68% change in inventories.  Hopefully, Christmas can help explain such growth in inventories.  
• Non-residential private domestic investment grew 0.42%, which is not disappointing, but we must note that there was no growth in investments in equipment within non-residential.  This could be an early indication of somewhat of a slowdown in manufacturing in Q4 or in Q1 '14.  
• As we mentioned in our guesstimate post, net exports did help Q3 GDP.  While exports of goods grew 0.49%, there was no change in exports of services.  In addition, lower imports (which declined 0.43%) may indicate that a slightly disappointing Christmas season is upon us.  For example, many retailers have already reported weaker-than-expected sales in Nov., according to the WSJ.
• Lastly, government spending declined 0.07%, which is not significant.  We continue to expect more government spending in Q4 and 2014. 

Again, the market closed slightly lower today with mixed economic data.  While better-than-expected GDP may have been perceived as good news (we disagree), it certainly brought the taper-talk to the forefront.  As mentioned earlier, retail sales in November were weak.  The good news was the much lower than expected initial jobless claims from last week.  Then again, it is Christmas Season which has likely increased demand for temporary hiring.  Speaking of jobs, Nov. NFP will be released by BLS tomorrow.  We expect +100K, compared to the Street's 180K.  And finally, we are happy today as we finally saw our New York Knicks break that embarrassing losing streak by beating the Brooklyn Nets by 30 points.  Hopefully, the much better flow in the offense that we saw, along with improved movement without the ball and overall defense, will continue the rest of the season.