CICC: US economic growth accelerates, investment remains strong.

CICC released a research report stating that US GDP growth accelerated in Q3, with strong domestic demand momentum. Private domestic final sales rose 4.9% quarter-over-quarter on an annualized basis, the highest since Q3 2021. Within this, equipment investment surged 20.9% on an annualized QoQ basis, with AI-related information processing equipment investment jumping 37.4%, contributing the most to growth since 2011 (excluding the pandemic period). Meanwhile, household consumption remained resilient overall, while real estate was suppressed by high interest rates, and the economy continued to transition between old and new growth drivers. Although inflation has moderated somewhat, the overall level remains elevated. Looking ahead to Q4, the bank expects marginal tightening of financial conditions and high oil prices may bring some headwinds, but the overall impact should be limited. The bank maintains its judgment that the US economy remains in an upcycle and that the Fed will raise rates by another 25 basis points in December. CICC's main views are as follows: US Q3 GDP growth accelerated, with strong internal momentum. By structure, the acceleration in growth mainly came from a rebound in investment growth, government spending turning from weak to strong, and continued expansion in household consumption; declining exports and rising imports constituted a drag. US Q3 private domestic final sales, a gauge of domestic demand, rose 4.95% quarter-over-quarter on an annualized basis, up further from 4.6% in Q2 and the fastest pace since Q3 2021, reflecting strong US domestic demand. Household consumption in Q3 showed strong resilience. Real personal consumption expenditures rose 3.8% quarter-over-quarter on an annualized basis, flat with Q2, contributing 2.5 percentage points to GDP. Within this, durable goods consumption rose 2.3%, slowing from Q2, with interest-rate-sensitive categories such as autos and recreational durable goods showing no notable improvement; non-durable goods rose 3.4%, up from Q2. Services consumption rose 4.1%, with healthcare (4.9%), transportation services (6.1%), and food services and accommodation (9%) all maintaining expansion. Overall, despite pressure from high interest rates and high oil prices, consumption resilience continued to exceed market expectations. One reason is that steady employment and wage income continue to provide some support for household spending, while asset returns for high-income households also help sustain consumption. Investment is the key factor behind the acceleration in economic growth, with AI-related investment remaining strong. Q3 fixed asset investment rose 9.4% quarter-over-quarter on an annualized basis, up further from 7.7% in Q2. Within this, equipment investment rose 20.9% quarter-over-quarter on an annualized basis, extending the high growth rate seen since the start of the year, with AI-related information processing equipment investment up 37.4% quarter-over-quarter on an annualized basis, while intellectual property investment rose 8.4%. The bank's estimates show that AI-related projects contributed a combined approximately 0.52 percentage points to real GDP year-over-year growth in Q3, with information processing equipment and software contributing 0.8 and 0.47 percentage points, respectively. Real estate investment remained under pressure. Q3 residential investment fell 3.3% quarter-over-quarter on an annualized basis, turning back to contraction from positive growth in Q2. As the Fed began raising rates, US Treasury yields remained elevated, and mortgage rates continued to climb, exerting sustained pressure on real estate. However, this change also reflects that the US economy is undergoing structural transformation and a shift between old and new growth drivers. The bank's estimates show that AI-related fixed asset investment as a share of US GDP has risen to 5.8%, while real estate investment's share has fallen to 3.0%. This also means that the DRIVE behind this economic cycle's expansion comes primarily from AI investment rather than traditional real estate. Net exports dragged on growth, while inventories contributed. Q3 imports rose 19.7% quarter-over-quarter on an annualized basis, dragging on GDP by 2.64 percentage points, with the largest contributor to import growth being capital goods excluding autos, reflecting the pull from AI-related investment on imported equipment. Q3 exports fell 5.7% quarter-over-quarter on an annualized basis, dragging on GDP by 0.68 percentage points, with petroleum and related products being a significant drag, possibly reflecting that after domestic petroleum reserve drawdowns, production mainly supplied the domestic market. On inventories, Q3 inventory changes contributed 1.61 percentage points to GDP growth, the highest contribution since Q1 2025. This suggests that businesses may have begun actively restocking, which is also a characteristic of an economic upcycle. Looking ahead, the bank believes that driven by AI investment, the US economy is still expected to maintain expansion, but marginally tighter financial conditions combined with high oil prices will also pose some headwinds to Q4 economic growth. Since the Fed's September rate hike, US high-yield corporate credit spreads have widened notably, reflecting a shift toward caution in market risk appetite. This may constrain investment and consumption to some extent through higher corporate financing costs and a weakened household wealth effect. In addition, Q4 economic performance also depends on oil price trends after the midterm elections. If Middle East geopolitical tensions can ease, it would help reduce uncertainty. Otherwise, it could keep costs elevated for households and businesses, suppressing consumption and investment. On inflation, price increases moderated somewhat in Q3, but the inflation level remains elevated. The PCE price index rose 2.1% quarter-over-quarter on an annualized basis, markedly down from 5.0% in Q2; core PCE rose 2.5%, also below Q2's 3.3%, with both year-over-year growth rates edging slightly lower. However, core inflation remains above the Fed's 2% target, and price pressures picked up again at the end of the quarter. In September, core PCE rose 0.3% month-over-month and 3.1% year-over-year, indicating that the prior disinflation trend is not yet firmly established. The bank believes that given strong domestic demand in Q3 and relatively rapid expansion in services consumption, endogenous inflation pressures still have some support, and inflation stickiness may persist. Overall, this GDP report confirms that the US economy is strong overall, and the risk of a sudden slowdown in the near term remains low. For the Fed, the focus of monetary policy will remain on controlling inflation. The bank maintains its judgment of another 25bp rate hike in December, but given that prior rate hikes have already driven marginal tightening of financial conditions and sectors such as real estate remain under sustained pressure, the Fed also has no need to rush into consecutive rate hikes.