Q3 GDP Unexpectedly Surges To 2 Year High On Soaring Health Insurance Spending

By now, Q3 GDP - which should have been reported almost two months ago - is ancient history but it still matters in a world where the Fed's every sneeze is overanalyzed. Which is why the report by the Bureau of Economic Analysis that in Q3 US GDP surged by 4.3%, up from an already hot 3.8% in Q2 and driven by a spike in consumer spending,will surely raise some eyebrows (for those wondering,

Taking a closer look at the components, this is how the 4.34% increase in bottom line GDP happened:

• Personal Consumption rose by a whopping 2.39%, up from 1.68% in Q2
• Fixed Investment moderated, rising by 0.19%, vs 0.77% in Q2. Once again, this is mostly data centers
• Change in private inventories declined by 0.22%, a moderation from the -3.44% drop in Q2, and to be expected as the trade aberration from the trade war moderate
• Net trade (exports less imports) also normalized and after a surge of 4.83%, the increase was a more modest 1.59%, driven by positive contributions from both exports (0.67%) and imports (0.92%).
• Finally, government contributed 0.39% to Q3 GDP after subtracting from US growth in each of the previous two quarters of 2024.

And visually:

While the surge in personal consumption would be a red flag for the Fed, as it indicates the US consumer is much stronger than expected, the reality is that - as shown below - the bulk of the increase was the result of surge in healthcare spending, which increased at a whopping 0.76% adjusted annual rate. Which means that personal spending was not driven by discretionary splurging but by a need to meet much higher health insurance costs!