2.8% Rise in U.S. GDP, Overseas Growth Picks Up

Yesterday, the FHFA House Price Index rose 0.3% in August, surpassing the 0.1% gain expected and the largest monthly increase since April.?

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Also, the S&P CaseShiller 20-City Home Price Index rose 0.35% in August, more than the 0.20% gain expected and following a 0.25% gain the month prior. The 0.35% increase marks the largest monthly rise in two months. Meanwhile, the National Home Price Index rose 0.32%, the largest monthly gain since February. Over the past 12 months, the 20-city index rose 5.20%, a ten-month low, while the national index gained 4.24%, the weakest increase in eleven months.

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Additionally, yesterday, the number of job openings according to JOLTS – the Job Openings and Labor Turnover Survey fell to 7.44M in September from a downwardly revised 7.86M in August. According to the median forecast, to 8.0M job openings were expected. In the details of the report, the hiring rate ticked up from 3.4% to 3.5% in September, a four-month high and the quits rate declined from 2.0% to 1.9, the lowest since June 2020. Additionally, the ratio of job openings to unemployed people declined slightly from 1.11 to 1.09.

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Finally, yesterday, the Conference Board’s Consumer Confidence?Index rose from 99.2 to 108.7 in October, surpassing the expected gain 99.5 and the highest reading since January. In the details of the report, a gauge of current conditions rose from 123.8 to 138.0, a five-month high, and a gauge of future expectations increased from 82.8 to 89.1 in October, the highest reading since December 2021.

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This morning, GDP rose 2.8% on an annualized basis in the preliminary Q3 report, falling short of the 2.9% gain expected and a two-quarter low. The four-quarter average, meanwhile, declined from 3.0% to 2.7%.

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In the details of the report, personal consumption rose more than expected, gaining 3.7% in the preliminary Q3 report, up nearly one percent from the quarter prior.

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Goods consumption rose 6.0%, due an 8.1% gain in durables consumption and a 4.9% increase in nondurables consumption.

Services consumption, meanwhile, rose 2.6%, down from a 2.7% increase in the second quarter.

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Gross private investment, a gauge of business spending, increased 0.3% following an 8.3% gain in Q2.

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Fixed investment rose 1.3% in the first-round Q3 report following a 2.3% increase the quarter prior.

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Nonresidential investment – including office buildings and factories – increased 3.3%, due to an 11.1% jump in equipment investment, and a 0.6% gain in intellectual property investment. Structures investment, however, fell 4.0% in the preliminary Q3 report.

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Residential investment, meanwhile, dropped 5.1% in Q3 following a 2.8% decline in Q2.

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On the trade side, exports surged 8.9%, significantly above the 1.0% gain reported in Q2, while imports increased 11.2% in the preliminary Q3 report.

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Finally, government consumption climbed 5.0% in the third quarter, the most in a year. Federal spending increased 9.7%, due to a 14.9% gain in national defense spending and a 3.2% increase in nondefense spending. State and local spending, meanwhile, rose 2.3%.

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In addition, the Core PCE Price Index rose 2.2% in the third quarter, down from the 2.8% gain in the second quarter and the smallest quarterly increase since Q4 2023.

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Overseas, while well below the latest figures in the U.S., growth picked up unexpectedly with upside surprises reported in several areas. Q3 growth rose 0.4% in the Eurozone led by Spain, up 0.8% and Ireland, posting a 2.0% rise. On the weaker side, Hungary, Latvia and Sweden posted contractions.

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Also this morning, MBA mortgage applications declined 0.1% in the week ending October 25. The 30-year mortgage rate rose from 6.52% to 6.73%, the highest since the end of July.

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Additionally, this morning, ADP reported that private-sector employment rose by 233k in September, well above forecasts and the highest since July 2023.

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Finally, this morning, pending home sales jumped 7.4% in September, well surpassing the 1.4% gain expected and following a 0.6% gain in August. Over the past 12 months, pending home sales increased 2.2%.

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Tomorrow, the latest weekly jobless claims report is expected to show a 3k rise to 230k.

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Also?the latest September personal income and consumption reports will be released along with the PCE report – the Fed’s preferred inflation gauge.

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Personal consumption is expected to rise 0.4% in September and 4.6% on an annual basis, a potential downtick from the 5.2% annual gain in August, albeit still very solid on a nominal basis and well within the range established since May 2023. Income, meanwhile, is expected to rise 0.4% in September and 5.2% year-over-year, also marking a potential downtick from the August pace of 5.6%.?

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The PCE is expected to rise 0.2% in September following a 0.1% gain the month prior, and 2.1% on an annual basis, potentially marking a one-tenth of a percentage point decline from the pace reported in August. Stripping out food and energy, the core PCE is expected to rise 0.3% in September, following a 0.1% gain the month prior, and potentially increase 2.6% year-over-year, also a potential one-tenth of a percentage point decline from the pace in August.?

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Also on Thursday, the Chicago PMI report will be released.

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On Friday, we will have an updated look at the labor market. According to Bloomberg, preliminary data suggests?Hurricanes Helene and Milton could lower payrolls by 150k in October, potentially resulting in the first negative print since 2020. Of course, timing is everything and it remains uncertain how quickly the broader weakness will filter into the numbers. The median consensus, meanwhile, continues to anticipate a 110k rise.?

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For the Fed, weather-related weakness can be easily dismissed. However, it does offer the Committee additional cover to continue with a second-round rate cut next week even in the face of stronger-than-expected data elsewhere in the economy and stubbornly sticky inflation. ??

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Also on Friday, in addition to the nonfarm payrolls report, the S&P Global U.S. manufacturing PMI, along with September construction spending and the ISM Manufacturing Index for October.

In September, manufacturing activity remained at a reading of 47.2 for the second consecutive month, marking the sixth consecutive month in contractionary territory, or a reading below 50. This month, the ISM Manufacturing Index is expected to tick up to a reading of 47.6.

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-Lindsey Piegza, Ph.D., Chief Economist