Galaxy Securities US Q3 GDP Review: Growth stemmed from weakening inventory disturbances and improved net exports

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that GDP for the third quarter was significantly higher than the previous value and market expectations, but the improvement in consumption and investment was limited. The recovery in growth was mainly driven by inventory contraction and net export improvements. Real economic momentum did not increase: the actual US GDP in the third quarter of 2025 was 4.3% month-on-month (previous value 3.8%), which was significantly higher than the 3.3% market forecast. After stocks were drastically removed in the second quarter and pre-imports suppressed growth, the real GDP growth rate rebounded in the third quarter as imports declined and inventory dragged down clearly, compounded by a phased recovery in consumption. This rebound is more in line with the mitigation of earlier structural disturbances, and does not mean that America's real economic growth momentum has improved. On the price side, inflation picked up marginally in the third quarter. Core PCE inflation in the third quarter was 2.9% month-on-month (previous value 2.6%).

The main views of China Galaxy Securities are as follows:

Consumption's support for growth has increased, but judging from the operating range, this growth rate is still at the central level since the second half of 2024, and there has been no trend increase. Specifically, the month-on-month discount rate for personal consumption in the third quarter was 3.5% (previous value 2.5%), driving GDP by 2.39 percentage points, up from 1.68 percentage points in the second quarter. Against the backdrop of wage growth continuing to slow, the recovery in consumption is more in favor of a restorative nature.

From a structural point of view, commodity consumption contributed 0.66 percentage points, of which durable goods contributed only 0.12 percentage points, lower than 0.17 in the second quarter, and significantly weaker than 0.92 in the fourth quarter of 2024. Consumption of motor vehicles and parts changed from positive 0.23 in the second quarter to negative 0.17, indicating that the previous rebound was more phased. Consumption of non-durable goods contributed 0.54 percentage points, becoming the main support for the commodity side. Service consumption continued to underpin growth, and its impact on GDP rose to 1.74 percentage points in the third quarter. Among them, medical services contributed 0.76 percentage points, up from the previous two quarters; while contributions from catering and lodging, transportation services, and financial and insurance-related services declined, and optional services were generally weak, and service-side improvements mainly came from rigid spending.

Investment did not improve with the recovery in GDP in the third quarter, and is still in a weak range: the drive of total private investment to GDP in the third quarter was -0.02 percentage points. Although it was a significant improvement from -2.66 in the second quarter, after excluding inventory, the impact of fixed asset investment on GDP was only 0.19 percentage points, a marked drop from 0.77 in the second quarter. Under the constraints of low interest rates and uncertain demand, companies' willingness to invest is still cautious. Non-residential fixed asset investment contributed 0.40 percent to GDP, down from 0.98 in the second quarter and 1.24 in the first quarter. Among them, equipment investment contributed 0.29 percentage points, down from the second quarter, indicating that AI-related hardware investment in the early stages entered a steady stage after the centralized release; investment in transportation equipment and other equipment was still low. The impact of intellectual property investment on GDP was 0.30 percentage points, a significant decrease from 0.78 in the second quarter.

Looking at the breakdown, the contribution of software-related investment fell from 0.58 to 0.07, while R&D investment remained around 0.23, indicating that while maintaining medium- to long-term technology and R&D investment, enterprises tend to be cautious about short-term investments that can be postponed. Furthermore, investment in non-residential construction contributed 0.19 percentage points to GDP in the third quarter. Close to the second quarter, investment in commercial real estate and manufacturing plants is still in a downward range.

Inventories and net exports were the main source of the rebound in GDP in the third quarter, but it was more reflected in phased fluctuations: the negative impact of inventories on GDP in the third quarter converged from 3.44 percentage points in the second quarter to 0.22 percentage points. However, inventory is still a negative contribution, indicating that the company is still in the inventory removal stage. In the same period, net exports made a positive contribution of 1.59 percentage points to GDP, of which exports contributed 0.92 percentage points and imports fell 0.67 percentage points. Commodity imports have clearly slowed down, giving a significant positive boost to GDP, which is in line with the characteristics of weakening domestic demand in the US or the decline of the effect of grabbing imports in the early stages.

The market is reducing its bet on the Federal Reserve's interest rate cut in 2026: Affected by the economic growth rate exceeding expectations, CME observation data shows that the probability of interest rate cuts in January 2026 is lower than before. After the data was released, Hassett, a popular candidate for the Federal Reserve Chairman, said that the basis for growth still comes from falling prices, income growth, and improved sentiment, and clearly stated that if the GDP growth rate remains around 4%, new jobs are expected to return to the range of 100,000 to 150,000 people per month. At the same time, he also bluntly stated that the Federal Reserve clearly lags behind the situation on interest rate cuts. Galaxy Securities believes that the economic growth in the third quarter mainly reflects the decline in inventory and trade disturbances, which is not enough to change the trend of weakening employment margins; against the backdrop of employment becoming the focus of policy trade-offs and the gradual implementation of the Federal Reserve Chairman's candidate, there is still room for about 3 interest rate cuts in 2026.

Risk warning: risk of a decline in US aggregate demand, risk of unexpected drastic adjustments to the Trump administration's tariff policy