Main takeaways:
  • Strong domestic demand:
    • Consumption increasing at 3% yoy.
    • Investment slowed to 3.4% yoy -- but excluding oil sector, investment is up 6%yoy.
  • Government consumption and investment turned positive in 2014 and is up 0.7% yoy.
  • Net exports will likely continue to contribute negatively to GDP -- but in the recent US history, soft export growth was never associated with weak overall income growth.



US GDP increased 2% yoy in Q3.

Domestic demand (GDP excluding net exports and inventories) is growing at 2.8% yoy.


Private consumption rose 3.2% yoy - similar to the growth rate observed in the last 2 years.

Private investment slowed down to 3.4% yoy...

...but excluding the direct (accounting) impact of oil, investment is growing at 6% yoy.

Government consumption and investment turned positive in 2014.

Exports increased 2% on average in the last two years (and 1.5% yoy in Q3). The slowdown in export growth started in 2013, and precedes the strengthening of the dollar, which dates mid-2014.

Imports rose 4.8% on average in the last two years (5.5% yoy in Q3).

As a result of the slowdown in exports and strong imports, net exports became a drag to GDP growth, similar to what had happened from 2000 to 2006.


Looking at 5-year cycles, the strengthening of the broad dollar index (in real terms) suggests net exports will continue to be an accounting drag to growth.

At face value, this relationship suggests that, by late 2017, the 5-year average contribution of net exports to growth will be around - 0.4pp. Given the performance of the last 3 years, this would imply an average contribution of net exports of around -0.75 percentage points over the next couple of years.


The chart below shows that it is unusual for 2-year average contribution of net exports to GDP to be close to or lower than 0.75pp...


...and all those episodes of very negative net exports contribution were associated with very strong domestic demand.
A quick look at those episodes show that exports growth slowed down. In 1997-1999 period, for example, the US dollar was strengthening, US real exports were sideways, and imports were growing fast at the same time the US economy was very strong.