CICC: US economic growth accelerates, investment remains strong

The Zhitong Finance App learned that CICC released a research report saying that US GDP growth accelerated in the third quarter, and domestic demand momentum was strong. Domestic final sales in the private sector increased 4.9% month-on-month, a record high since the third quarter of 2021. Among them, equipment investment increased 20.9% month-on-month, and investment in AI-related information processing equipment surged 37.4%, contributing the highest since 2011 (excluding the pandemic period). At the same time, overall consumer consumption remains resilient, while real estate is being suppressed by high interest rates, and the economy's old and new momentum continues to shift. Although inflation has declined somewhat, the overall level is still high. Looking ahead to the fourth quarter, the bank expects that marginal tightening of financial conditions and high oil prices may bring some headwinds, but the overall impact is limited. The bank maintains the judgment that the US economy is still in an upward cycle and that the Federal Reserve will raise interest rates by another 25 basis points in December.

CICC's main views are as follows:

US GDP growth accelerated in the third quarter, and endogenous momentum was strong. From a structural perspective, the acceleration in growth is mainly due to the recovery in investment growth, the shift in government spending from weak to strong, and the continued expansion of consumer consumption; the decline in exports and the rise in imports are a certain drag. Final domestic sales in the US private sector in the third quarter, which characterizes domestic demand, rose 4.95% year over month, up 4.6% from the second quarter, and recorded the fastest growth rate since the third quarter of 2021, reflecting strong domestic demand in the US.

Consumer consumption in the third quarter was quite resilient. Actual personal consumption expenditure increased 3.8% month-on-month, the same as in the second quarter, contributing 2.5 percentage points to GDP. Among them, consumption of durable goods increased by 2.3%, slower than in the second quarter. Consumer items that are more sensitive to interest rates, such as automobiles and durable goods for entertainment, did not improve significantly; non-durable goods increased by 3.4%, up from the second quarter. Service consumption increased by 4.1%, while healthcare (4.9%), transportation services (6.1%), and catering and lodging (9%) continued to expand. Overall, despite being suppressed by high interest rates and high oil prices, the resilience of consumption continues to be stronger than market expectations. One reason is that steady employment and wage income can still provide some support for household expenses, while asset returns from high-income households also help maintain consumption.

Investment is a key factor in the acceleration of economic growth, and AI-related investment remains strong. Fixed asset investment increased 9.4% month-on-month in the third quarter, a further increase from 7.7% in the second quarter. Among them, investment in equipment increased by 20.9% month-on-month, continuing the high growth rate since this year. Investment in AI-related information processing equipment increased 37.4% month-on-month, while investment in intellectual property increased by 8.4%. According to the bank's estimates, AI-related projects contributed a total of about 0.52 percentage points to actual GDP year-on-year growth in the third quarter, with information processing equipment and software driving 0.8 and 0.47 percentage points, respectively.

Real estate investment remains under pressure. Residential investment declined by 3.3% month-on-month in the third quarter, shifting from positive growth in the second quarter to contraction again. As the Federal Reserve began to raise interest rates, US bond yields remained high, and mortgage interest rates continued to rise, putting continued pressure on real estate. However, this change also shows that the US economy is undergoing structural transformation and the transformation of old and new kinetic energy. According to the bank's estimates, AI-related fixed asset investment has risen to 5.8% of US GDP, while the share of real estate investment has fallen to 3.0%. This also means that the driving force behind this round of economic cycle expansion is mainly AI investment rather than traditional real estate.

Net exports dragged down growth, and inventories contributed. In the third quarter, imports increased 19.7% year-on-year, dragging down 2.64 percentage points to GDP. The biggest contributor to import growth was capital goods other than automobiles, reflecting the impact of AI-related investment on imported equipment. Exports fell 5.7% year over year in the third quarter, dragging down 0.68 percentage points on GDP. Among them, petroleum and related products were an important drag, or reflected the consumption of US domestic oil reserves, and production was mainly supplied to the domestic market. In terms of inventories, inventory changes in the third quarter contributed 1.61 percentage points to the GDP growth rate, the highest contribution since the first quarter of 2025. This indicates that enterprises may have begun to actively replenish stocks, which is also a characteristic of the upward trend in the economic cycle.

Looking ahead, the bank believes that, driven by AI investment, the US economy is still expected to continue to expand, but the marginal tightening of financial conditions combined with high oil prices will also cause economic growth in the fourth quarter to face some headwinds. Since the Federal Reserve raised interest rates in September, credit spreads on US high-yield corporate bonds have widened markedly, reflecting a cautious market risk appetite. This may restrict investment and consumption by increasing corporate financing costs and weakening the wealth effect on residents. Furthermore, economic performance in the fourth quarter also depended on the trend of oil prices after the midterm elections. If the geographical situation in the Middle East were to ease, it would help reduce uncertainty. Conversely, it may keep costs high for residents and businesses and curb consumption and investment.

In terms of inflation, the price increase declined somewhat in the third quarter, but the level of inflation is still high. The PCE price index rose 2.1% month-on-year, clearly down from 5.0% in the second quarter; the core PCE rose 2.5%, which was also lower than 3.3% in the second quarter. Both showed a slight decline in year-on-year growth. However, core inflation is still above the Fed's 2% target, and price pressure rose again at the end of the quarter. The core PCE rose 0.3% month-on-month and 3.1% year-on-year in September, indicating that the previous trend of cooling inflation was not stable. The bank believes that considering strong domestic demand in the third quarter, service consumption maintained a relatively rapid expansion, endogenous inflationary pressure is still supported by some support, and inflation stickiness is still or persists.

Overall, this GDP report confirms that the US economy is strong overall, and the risk of a short-term stall is still low. As far as the Federal Reserve is concerned, the focus of monetary policy will still be on controlling inflation. The bank maintained its judgment to raise interest rates again by 25 bp in December, but considering that the early interest rate hike had pushed for marginal tightening of financial conditions and continued pressure on real estate and other sectors, there was no need for the Federal Reserve to rush to raise interest rates continuously.