A solid 3.5% real GDP growth rate reported for Q3 wasn't enough to appease the doomsayers. They say inventories boosted growth and that can't last. Plus, they say, business investment was soft.
What the pessimists miss is that the surge in inventories in Q3 was a rebound from the unusual outright decline in Q2. Inventories subtracted 1.2 percentage points from real GDP growth in Q2 and then added 2.1 points in Q3. This was close to a mirror-image of what happened with net exports, which added 1.2 points in Q2 and then subtracted 1.8 in Q3.
Yes, real business investment grew at only a 0.8% annual rate in Q3, but we've had tepid quarters before, including as recently as the end of 2016, without signaling an impending recession. And don't be surprised if the recent figures get revised up in the next two months.
