Live Markets: Thursday data "accumulation": GDP, PCE, jobless claims
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THURSDAY DATA "ACCUMULATION": GDP, PCE, JOBLESS CLAIMS
Market participants were subjected to sensory overload on Thursday as a raft of crucial economic data was tossed atop the pile of things to think about, including earnings, ongoing geopolitical strife, the fast-approaching midterm election, and the Fed's decision to hold rates steady as it awaits the "accumulation" of additional data.
Let the accumulation begin.
Starting at the top, the US economy grew at a 3.4% quarterly annualized rate last quarter, a solid acceleration from the previous quarter's 2.2% increase and stronger than the 3.2% growth analysts expected.
The robust reading belies the dour economic outlook evidenced in recent household and consumer sentiment data, with households feeling the pinch of hot inflation amid geopolitical turmoil and uncertainties surrounding the approaching midterm elections.
Below the surface of the Commerce Department's first stab at first-quarter GDP, net trade detracted 3.3 percentage points from the topline, but private inventories, bucking the recent trend, added 1.6 pps to the total. Fixed investment contributed 1.7 pps, with expenditures on equipment — a symptom of the AI buildout — adding 1.2 pps.
Consumer spending, which accounts for about 70% of the US economy, did the heavy lifting as always. The consumer contributed a robust 2.5 pps to the topline number. Without the consumer, Q3 GDP would have increased by a lethargic 0.9 ppt.
"Market participants will be happy with most of these results," writes Carl Weinberg, chief economist at High Frequency Economics. "However, Fed policymakers now have even less reason not to hike rates ASAP to cool the excess demand."
Beyond its upbeat GDP data, the intrepid Commerce Department also unveiled its wide-ranging personal consumption expenditures (PCE) report for September.
To start with, the PCE price index—the Fed's pet inflation yardstick—rose by 0.5% on a monthly basis, and by 3.6% year-on-year, as expected. Both numbers were hotter than the respective 0.3% and 3.4% growth reported in the month prior.
Core prices (which exclude food and energy items) increased on monthly and annual bases by 0.3%, and 3.1%, respectively, also in line with consensus,
The data marked the fourth and final major inflation indicator for September, and backed up Warsh & Co's observation, expressed in Wednesday's policy statement, that price growth "remains elevated."
"The Fed is tightening the screws, but the economy has yet to get the memo," writes Olu Sonola, head of US economics at Fitch Ratings. "If the Fed needed another reason to hike in December, this report just gave it one."
Elsewhere in the report, personal income increased by 0.2%, slower than August's upwardly revised 0.3% increase, a bit weaker than analysts expected.
Personal consumption increased by 0.5%, a slowdown from August's 0.9% figure and falling shy of the 0.6% consensus.
With spending far outpacing income, the savings rate — the unspent portion of disposable income — dipped to 3.8% from 4.0%, hitting a four-year low.
"Looking ahead, persistently weak income growth suggests consumption will soon lose momentum," says Samuel Tombs, chief US economist at Pantheon Macroeconomics.
Jumping over to the employment side of Warsh & Co's dual mandate, 194,000 US workers joined the queue outside the unemployment office last week, 1,000 fewer than the previous week and 5,000 shy of Street estimates.
Ironing out weekly volatility, the four-week moving average of initial claims continues to drift sideways, with a slight downward bias.
Cumulatively, recent labor market reports and survey data suggest jobs are increasingly difficult to come by, but so are qualified workers. Therefore, amid the previously mentioned uncertainties, the US economy is content, for now, to drift along in low-hire/low-fire mode.
"While the labor market remains a challenge for those unemployed amid a weak hire rate, the low level of layoffs means those employed are secure in their positions," says Matthew Martin, senior US economist at Oxford Economics. "Weak labor supply growth means the former won’t push the unemployment rate higher, while the latter remains a key downside force."
Ongoing jobless claims, which are reported on a one-week lag, dropped 1.2% to 1.701 million, undershooting estimates by 19,000.
(Stephen Culp)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own )
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