Consumer Spending Drives September GDP Growth

Last week, gross domestic product figures showed slightly stronger economic output, particularly driven by consumer spending. The personal consumption expenditures index missed the Federal Reserve’s inflation target for the fourth straight month. Also, unemployment applications increased for the week ending October 20, but continuing claims declined for the week.

• The U.S. continued to expand faster than expected in the third quarter of 2018. For the three-month period ending in September, the U.S. economy expanded at a 3.5% year-over-year rate, whereas economists had only expected 3.4%. Consumer spending is the likely driver of output growth in Q3, growing 4% from one year prior. Under the currently tight labor market conditions, with plenty of jobs available, households have more to spend than in the past, driving spending growth. However, business investment expanded slightly, growing a mere 0.8% year-on-year.

• The personal consumptions expenditures index, or PCE, shows that inflation is continuing to come under Federal Reserve monthly targets. The Fed aims for 2% annual growth in prices, implying a 0.165% monthly growth. However, those figures fell short at 0.1% in September from August, marking the fourth straight month falling short. This signals to policy-makers that inflation is in check, at least momentarily, and drastic rate increases are not required.

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• Applications for unemployment aid increased by 3,000 for the week ending October 20, totaling 215,000. However, the total number of unemployment recipients dropped by 5,000 to 1.64 million for the same week, its lowest level since 1973. Continuing claims data signals for an improvement in October’s unemployment rate as the four-week moving average declined by 33,250 claims since the September period.