Galaxy Securities' commentary on the US third quarter GDP: Growth is driven by the weakening of inventory disruptions and improvements in net exports.

China Galaxy Securities released a research report stating that GDP in the third quarter was significantly higher than previous values and market expectations, but the improvement in consumption and investment was limited. The growth rebound was mainly driven by the convergence of inventory drag and improvement in net exports, and the actual economic momentum did not strengthen: In the third quarter of 2025, the real GDP growth rate in the United States was 4.3% on a quarter-over-quarter annual rate basis (compared to 3.8% previously), significantly higher than the market expectation of 3.3%. After a significant destocking and import suppression in the second quarter, the third quarter saw a noticeable convergence of inventory drag with a decline in imports, coupled with a repair in consumption, resulting in a rebound in real GDP growth. This rebound corresponds more to the alleviation of previous structural disturbances, and does not mean that the actual economic growth momentum in the United States has improved. In terms of prices, inflation marginally increased in the third quarter. Core PCE inflation in the third quarter reached an annual rate of 2.9% (compared to 2.6% previously). Key points from China Galaxy Securities: Consumption's support for growth has strengthened, but the growth rate is still at a moderate level since the second half of 2024, and there is no trend of a sustained increase. Specifically, personal consumption in the third quarter grew at an annual rate of 3.5% (compared to 2.5% previously), contributing 2.39 percentage points to GDP growth, higher than the 1.68 percentage points in the second quarter. With wage growth continuing to slow, the rise in consumption leans more towards a reparative nature. In terms of structure, goods consumption contributed 0.66 percentage points to GDP growth, with durable goods contributing only 0.12 percentage points, lower than the 0.17 in the second quarter, and significantly weaker than the 0.92 in the fourth quarter of 2024. Investment in motor vehicles and parts shifted from a positive 0.23 in the second quarter to a negative 0.17, indicating a more temporary rebound. Non-durable goods consumption contributed 0.54 percentage points, providing the main support on the goods side. Service consumption continues to underpin growth, contributing 1.74 percentage points to GDP in the third quarter. Medical services contributed 0.76 percentage points, higher than the previous two quarters, while contributions from catering, accommodation, transportation services, and financial and insurance-related services declined, indicating a general weakness in discretionary services, with improvement in the service sector mainly driven by rigid expenditures. Investment did not improve along with GDP growth in the third quarter and remains in a weak zone: Private investment in the third quarter contributed -0.02 percentage points to GDP, an improvement from -2.66 in the second quarter but fixed-asset investment excluding inventories contributed only 0.19 percentage points to GDP, significantly lower than the 0.77 in the second quarter. With interest rates not low and demand uncertainty constraining, business investment willingness remains cautious. Non-residential fixed asset investment contributed 0.40 percentage points to GDP, lower than the 0.98 in the second quarter and 1.24 in the first quarter. Equipment investment contributed 0.29 percentage points, lower than in the second quarter, indicating a stable phase following a concentrated release of AI-related hardware investments in the previous period; transport equipment and other equipment investments remain low. Intellectual property investment contributed 0.30 percentage points to GDP, significantly lower than the 0.78 in the second quarter. In terms of details, the contribution of software-related investments decreased from 0.58 to 0.07, while research and development remained near 0.23, indicating that companies are cautious about short-term and deferrable investments while maintaining long-term technology and research investment. Additionally, in the third quarter, non-residential construction investment contributed -0.19 percentage points to GDP, similar to the second quarter, as commercial real estate and manufacturing factory investment remain in a downturn. Inventory and net exports were the main sources of GDP rebound in the third quarter, but were more indicative of temporary fluctuations: Inventory drag on GDP decreased from 3.44 percentage points in the second quarter to 0.22 percentage points in the third quarter. However, inventories still had a negative contribution, indicating that businesses are still in a destocking phase. Meanwhile, net exports contributed 1.59 percentage points to GDP, with exports contributing 0.92 percentage points and import decline contributing 0.67 percentage points. The slowing of goods imports contributed significantly to GDP growth, in line with the weakening of domestic demand in the United States or the fading of the previous import rush effect. The market reduced its bets on a rate cut by the Federal Reserve in 2026: Due to the economic growth exceeding expectations, CME observation data shows a convergence in the probability of a rate cut in January 2026. Following the data release, a leading candidate for the Fed chairmanship, Hasset, stated that the foundation of the growth remains in declining prices, improving sentiment, and income growth, and emphasized that if GDP growth remains around 4%, new job growth is expected to return to the range of 100,000 to 150,000 per month. He also bluntly stated that the Fed is clearly behind the curve on rate cuts. China Galaxy Securities believes that the economic growth in the third quarter mainly reflects the fading of inventory and trade disturbances, which is not enough to reverse the trend of weakening job conditions. With employment becoming the focus of policy considerations and the gradual settlement of the Fed chairmanship, there is still room for about three rate cuts in 2026. Risk warnings: Risks of a decline in total demand in the United States, and risks of significant adjustments to the Trump administration's tariff policy.