MBS MID-DAY: Treading Water After Morning Sell-Off


– GDP +3.6 vs +3.0 forecast
– Consumer Spending +1.4, lowest since Q4 2009
– Business Inventory buildup added 1.68 to GDP
– Inventory change adds most to GDP since Q4 2011
– market reaction: A strong headline, but not without some “yeah buts.” Bond markets seem to be conveying this with an initial spike into weaker territory followed by better support than we would typically expect based on the headline alone.

Real gross domestic product — the output of goods and services produced by labor and property
located in the United States — increased at an annual rate of 3.6 percent in the third quarter of 2013 (that
is, from the second quarter to the third quarter), according to the “second” estimate released by the
Bureau of Economic Analysis. In the second quarter, real GDP increased 2.5 percent.

The GDP estimate released today is based on more complete source data than were available for
the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 2.8
percent (see “Revisions” on page 3). With this second estimate for the third quarter, the increase in
private inventory investment was larger than previously estimated.

The increase in real GDP in the third quarter primarily reflected positive contributions from
private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed
investment, residential fixed investment, and state and local government spending that were partly offset
by a negative contribution from federal government spending. Imports, which are a subtraction in the
calculation of GDP, increased.

The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in
private inventory investment, a deceleration in imports, and an acceleration in state and local
government spending that were partly offset by decelerations in exports, in PCE, and in nonresidential
fixed investment.

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