Hump-day data part 1: GDP unchanged, PCE hits consensus bull's eye
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HUMP-DAY DATA PART 1: GDP UNCHANGED, PCE HITS CONSENSUS BULL'S EYE
Investors were treated to data onslaught on Wednesday as the interruption caused by the Thanksgiving holiday resulted in a bottleneck of indicators.
The Commerce Department was particularly busy; a second stab at third-quarter GDP, its advance take on goods trade and wholesale inventors, and its wide-ranging Personal Consumption Expenditures (PCE) report.
Starting with the last one, PCE, as it is likely the most closely watched, particularly for those who make a business out of predicting the near-term moves of the Federal Reserve.
The PCE price index USPCE=ECI, perhaps the report's most closely scrutinized element (and the Fed's favored inflation yardstick), behaved nicely by delivering exactly what analysts expected.
Prices increase on monthly and year-on-year bases by 0.2% and 2.3%, respectively, the former a repeat of the September print and the latter marking a 20 basis point acceleration.
Stripping out volatile food and energy items, core PCE prices rose 0.3% from September and 2.8% from October 2023, also inline with expectations.
"These numbers that suggest inflation continues to move in the right direction. There may be a blip from time to time, but that's what the market expected," Peter Cardillo, chief market economist at Spartan Capital Securities told Reuters.
"This paves the way for a 25 basis point cut in December and then probably a pause," Cardillo added. "But the pause won't likely be due to inflation data, but because of uncertainties over Trump's tariffs. I think the Fed will grow cautious."
It bears repeating that core PCE is now within a percentage point of Powell & Co's 2% target:
Elsewhere in the report, personal income growth surprised to the upside by growing at 0.6%, double the rate expected.
"The robust increase in personal income will eventually translate into more consumer spending," Cardillo added.
On the other hand, consumer expenditures - which account for about 70% of U.S. GDP - decelerated to 0.4% from 0.6%, a hair better than the 0.3% economists predicted.
Digging deeper, disposable income growth accelerated to 0.4% from 0.1%, resulting in an increase in the saving rate.
The saving rate, which represents the unspent share of disposable income and is often regarded as an indicator of consumer expectations, jumped to 4.4% versus 4.1% the month prior.
It was the saving rate's first increase since January.
Next, a second take on GDP for the July-September period USGDPP=ECI resulted in a repeat of the originally stated 2.8% quarterly annualize percent change.
But while the headline number was repeated, as expected, below the surface, a decrease in consumer spending was countered by improved private inventory investment and nonresidential fixed investment.
"(The) consumer remains the key support to real GDP, adding 2.4 (percentage points) to growth in Q3 but this is a touch less than in the advance estimate," writes Ryan Sweet, chief U.S. economist at Oxford Economics. "This was offset by an upward revision to the contribution to GDP growth from business fixed investment. The revisions to net exports and inventories were minor."
Finally, in October, the gap between value of goods imported to the United States and those exported abroad USGBAL=ECI narrowed by 8.8% while U.S. wholesalers grew their inventory USAWIN=ECI by 0.2%, reversing September's 0.2% decline.
Both bode well for current-quarter GDP, particularly considering net trade has been a GDP detractor for the last five quarters, and private inventories have been dragged on the topline for three of those five.
Goods trade balance will be a closely watched space once president-elect Donald Trump's tariffs kick in.
(Stephen Culp)
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Inflation gauges https://reut.rs/4fOUhIe
Personal consumption https://reut.rs/3ZnN1wW
GDP contributors https://reut.rs/4eKM6eA
Goods trade balance and GDP https://reut.rs/4g8vzlA
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