According to data released by the Economic Analysis Bureau of the US Department of Commerce on Thursday, the initial reading of the US gross domestic product (GDP) for the third quarter was 4.9%, a new high since the fourth quarter of 2021, driven by strong consumer spending. The expected market growth rate is 4.7%, with a previous value of 2.1%.
James Early, Chief Investment Officer of BBAE, a newly emerging internet brokerage in the United States, told reporters from First Financial that the strong GDP data has increased the probability of further interest rate hikes by the Federal Reserve, but he is not concerned about this. GDP growth rate is a lagging indicator that represents what has already occurred. But there are signs that the quality of consumer credit is weakening. This means that many actions taken by the Federal Reserve in the past year will begin to show results in the next six months.
From a data perspective, despite facing high interest rates, inflationary pressures, and other factors, the US economy grew much faster in the third quarter than in the second quarter due to factors such as consumer spending, inventory growth, exports, residential investment, and government spending. This is the latest sign that the US economy remains resilient.
Compared to the second quarter, the growth rate of real GDP in the third quarter reflects an acceleration in consumer spending, private inventory investment, and federal government spending, as well as an increase in exports and fixed investment in housing. These changes were partially offset by a decline in non residential fixed investment and a slowdown in the growth rate of US state and local government spending. Imports are showing an upward trend. Among them, consumer spending increased by 4% in the third quarter, far exceeding the 0.8% level in the second quarter, and contributing 2.7 percentage points to the overall GDP. Consumer spending is basically balanced between goods and services, with growth rates of 4.8% and 3.6%, respectively.
Despite the persistent inverted curve of US Treasury yields warning of economic recession, US consumer spending still exceeds expectations. Ji Junli stated that in recent years, the inversion of the yield curve has been puzzling because it has predicted every economic recession since the 1950s. He claimed that economics is a social science, not an exact mathematical science. The conditions for economic recession have not yet been met. Ji Junli also stated that although the Federal Reserve did not successfully control inflation a few years ago, it did a good job in achieving a soft landing in the economy.
With the release of GDP data, the 10-year US Treasury yield fell more than 10 basis points on Thursday to 4.847%, but still approached the 5% mark.
Federal Reserve Chairman Powell stated in New York last week that the current rise in bond yields is causing financial conditions to tighten, and the surge in borrowing costs may replace further interest rate hikes by the Federal Reserve. But he also stated that additional evidence of economic growth may further increase the risk of inflation, leading to further interest rate hikes.
In a report sent by Wells Fargo to First Financial reporters, the bank's economist team believes that although sustained strong demand may hinder a decline in inflation, the GDP data will not have a significant impact on the Federal Reserve's policy. It is expected that the Federal Reserve will maintain interest rates unchanged at its meeting next week. Michael Arone, Chief Investment Strategist at State Street Global, believes that the latest GDP data confirms the known fact that consumers went crazy shopping in the third quarter. This report does not change the outlook for the Federal Reserve's monetary policy, and it is also the reason why the market did not overreact.
According to the CME Federal Reserve Observation Tool, the market expects a 99.4% probability of the Federal Reserve staying put at its policy meeting in November, and a 79.8% probability of the Fed remaining put at its meeting in December.
On the US stock market side, as investors weighed GDP data, the US stock market continued its decline on Thursday, with all three major stock indices closing lower, with the Nasdaq down 1.76%, further falling into a correction zone. However, Ji Junli is still bullish on the year-end trend of US stocks. He believes that the probability of a decline in US stocks is not high, whether from the perspective of US consumption intensity or the labor market.