|

US Q3 GDP: Economy expected to sustain solid real growth ahead - Wells Fargo

Analysts from Wells Fargo, point out that today’s 3% US Q3 GDP reading showed some evidence of temporary moderation due to storms, but the economy is expected to sustain solid real growth in the fourth quarter and for 2018. 

Key Quotes: 

“In the third quarter, spending by the consumer and business slowed as real final sales came in at 2.3 percent compared to a gain of 2.9 percent in the second quarter and 1.9 percent for 2016. Government was a small drag on growth. In perspective, real GDP growth has averaged 2.7 percent since 1982, although the pace of growth in the current expansion is only 1.7 percent, down from 2.6 percent in the prior expansion. Going forward for real GDP, we expect a gain of 2.6 percent in the fourth quarter and 2.4 percent for 2018.”

“Consumer spending grew at 2.4 percent in the third quarter (3.3 percent in Q2) with gains in durables but slower in non-durables and services relative to their Q2 pace. This moderation is consistent with the slower pace of real disposable income and a modest hurricane effect. For investment, equipment was solid but structures fell while another real hit came in for residential investment (hurricane impact in TX and FL), which fell for the second quarter in a row. For the government sector, the real story is a second quarter of decline in state & local spending.”

“Overall GDP prices came in at 2.2 percent in the Q3, with the PCE deflator coming in at 1.5 percent, below the FOMC’s 2 percent target. Inflation, as measured by the PCE deflator, is not mean reverting, in fact, the pace of inflation has trended down since 1982. The PCE deflator has averaged 2.4 percent since 1982, 1.8 percent since 1994 (NAFTA) and 1.5 percent in the current recovery.”

“This pace of GDP growth would bring forth an FOMC increase in the fed funds rate in December and again one move in the first half of 2018 as well as a modest rise in the benchmark two and ten year Treasury rates.”

Author

Matías Salord

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

More from Matías Salord
Share:

Editor's Picks

AUD/USD edges higher as hot CPI inflation and hawkish RBA lift rate hike bets

The AUD/USD pair gathers strength to near 0.7035 during the Asian trading hours on Friday. The Australian Dollar edges higher against the US Dollar as hotter Australian CPI inflation data has bolstered expectations of Reserve Bank of Australia rate hikes.

USD/JPY meets support near 157.00

USD/JPY retreats for the third consecutive day on Friday, revisiting the 157.00 region before attempting some recovery as investors continue to assess the latest BoJ meeting, where the central bank left rates unchanged, as widely anticipated.

Gold sinks to fresh yearly lows despite risk-off mood as Fed rate hike bets weigh

Gold slips to fresh year-to-date lows on Friday. The metal struggles despite a risk-off mood across markets, as expectations of further Federal Reserve (Fed) interest rate hikes continue to dominate price action, leaving Gold on track to end the month in negative territory.


Ripple Price Forecast: XRP bulls defend $1.20 as sell-side pressure triggers liquidations
Ripple (XRP) trades around $1.25 on Friday, rising from a short-term support level established at $1.20. This minor upward correction follows a sharp sell-off, triggered amid reports of a hack attack on the Binance exchange that impacted approximately $6.3 billion. The attack drove the broader crypto market on edge, as Binance suspended both deposits and withdrawals to contain the situation.
BoJ recap: A pause for now... but Japan has entered a new inflation phase
The Bank of Japan left its short-term policy rate unchanged at 1.25% but delivered a distinctly hawkish message on the risk of an inflation overshoot. The decision passed by 8-1, with board member Takata dissenting in favour of an increase to 1.5%, while Governor Kazuo Ueda stressed that the Bank would continue adjusting policy as needed.
The 2% inflation target came from a throwaway remark. It now moves trillions
The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.