USD Likely to Continue Higher As Q3 GDP Jumps
Several months ago most analysts were expecting the US economy to fall into a recession later this year or in 2024. But that hasn’t materialized and in fact, the opposite has happened. Most economic data indicators have shown improvement in recent months and even the jobs sector which was showing weakness has recovered.
Even US officials such as the US Treasury Secretary Janet Yellen are accepting the positive reality. She said that they appear to be on a “soft landing” trajectory, with no recession. A 4.9% GDP growth for Q3 will undoubtedly be a high threshold for the next few years, but whether it is a smooth landing or not depends on how hard high interest rates bite next year. Green energy and semiconductor investments will generate jobs according to her.
The economy is performing well, and we are seeing solid consumer spending. Bond rates are rising in most wealthy nations, but this is hardly a sign of impending recession. Part of the rise in yields reflects anticipation that interest rates would remain higher for a longer period of time. That latter statement is debatable because the FED funds curve hasn’t moved substantially.
US Q3 Advance GDP Report
- US Q3 advance GDP +4.9% vs +4.3% expected
- Final Q2 reading was +2.4% annualized
- Q1 was +2.0% annualized
- Best quarter since Q4 2021
- Estimates ranged from 2.5%-6.0%
Details:
- Consumer spending +4.0% vs +0.8% prior
- Consumer spending on durables %
- GDP final sales +3.5% vs +4.5% expected (+2.3% prior)
- GDP deflator 3.5% vs +2.5% expected (+2.2% prior)
- Core PCE +2.4% vs +2.5% expected (+3.8% prior)
- Exports +6.2% vs -9.3% prior
- Imports +5.7% vs -7.6% prior
- Business investment +8.4% vs +5.2% prior
Percentage point changes:
- Net trade -0.08 pp vs +0.04 pp prior
- Inventories +1.32 pp vs 0.0 pp prior
- Govt +0.79 pp vs +0.57 pp prior
The final Atlanta Fed GDPNow tracking estimate for GDP was +5.4%. The inflation metric is stale but it’s surprisingly high and the market isn’t sure how to read that because it could mean that Q4 inflation is lower or could be a sign of stickier inflation.
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