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Consumer Spending Helps Economic Growth in Third Quarter

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Oct. 30 2015, Updated 4:55 p.m. ET

GDP increased at annual rate of 1.5% in 3Q15

GDP (gross domestic product) is an important barometer of the ups and down in an economy. According to the Bureau of Economic Analysis (or BEA), the US economy increased at an annual rate of 1.5% in the third quarter of 2015. In the second quarter, real GDP increased 3.9%. This was below the consensus estimate of 1.7%.

The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P500 Bear 3X ETF (SPXS) fell 0.06% and 0.36%, respectively, as of October 29.

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Consumer spending saw positive contributions to economic growth in 3Q15

GDP is the best single measure of economic output and spending. An increase in consumer spending led to an increase in GDP for the third quarter. With a rise in consumption, consumer stocks such as Colgate-Palmolive (CL), Clorox (CLX), Coca-Cola (CCE), and Kellogg (K) rose 9.1%, 6.2%, 5.7%, and 6.7%, respectively, over the past month as of October 29.

Positive contributions were also seen from government spending and residential and non-residential fixed investments that have helped offset the negative contributions from private inventory investment. A piling up of inventory may force businesses to trim production, shut plants, and lay off workers.

Strong dollar led to decrease in exports

The dollar has appreciated against major currencies, making imports cheaper. Imports saw a surge in 3Q15. Similarly, an appreciating dollar makes exports uncompetitive in foreign markets. The world is currently affected by a slowdown in China and other emerging economies. A strong dollar and falling demand internationally have led to a decrease in exports.

Declining exports and falling demand have led to a decline in private investments in the economy in the third quarter. Businesses are becoming cautious on capital spending with the volatile global climate. A strong dollar further adds to their caution.

In the next part of this series, we’ll see how jobless claims are shaping up with the pessimism surrounding businesses.

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