GDP Beats Expectations with Help from Consumer Spending

Last week brought third quarter GDP results that narrowly beat economists’ expectations, thanks, in part, to strong annualized consumer spending and low inflation. The Personal Consumption Expenditure price index, which is used by the Fed, underperformed the Fed target in October. However, the Producer-Price Index grew 2.9% annually, driven by producer and supplier margin increases. The JOLT Survey revealed that job openings decreased slightly in September, while the economy yielded a significant net employment gain.

• The Commerce Department released third quarter GDP figures that came in just above expectations. While Dow Jones-polled economists expected 3.4%, the American economy grew at 3.5% for the three-month period ending in September on the backs of higher consumer spending and low inflation. Consumer spending, which traditionally accounts for two-thirds of GDP, grew at a 4.0% annualized rate, its fastest since 2014. Further, the Personal Consumption Expenditures (PCE) price index, a measure of inflation based on GDP, grew at 1.6%, below the Fed’s target of 2.0% and the polled expectation of 2.2%.

• The Producer-Price Index, an alternative measure of inflation derived from the prices firms pay for raw goods and supplies, surged 0.6% month-over-month in October, double economists’ predictions. The index grew 2.9% from twelve months prior, and according to the Labor Department, the bump can be attributed to a 1.6% monthly rise in a category of prices that reflects expanding bottom-line margins for retailers and suppliers. It isn’t unusual for producers to raise prices in October, before they offer discounts in November, during peak holiday-shopping season.
  

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• The Job Openings and Labor Turnover Survey (JOLTS) for September revealed job openings slipped to 7.0 million from 7.3 million a month before. However, seven million openings is still near record highs for the economy and is significantly more than the number of unemployed workers in September at 6.1 million. Overall, the economy yielded net employment of 2.5 million individuals over the course of the month.