Not a Slowdown: October 23 – 27

Q3 was the opposite of a recession. Here are the five things we learned from U.S. economic data released during the week ending October 27.

Q3 economic growth was the best in nearly two years. Real Gross Domestic Product (GDP) surged 4.9 percent on a seasonally adjusted annualized basis between July and September. We have not seen the U.S. economy expand at this pace since 2021Q4. The Bureau of Economic Analysis (BEA) measure had risen 2.1 percent during Q2 and has grown 2.9 percent over the past four quarters. Contributing to Q3 economic growth were (in descending order) personal consumption, the change in private inventories, net exports, government spending, and fixed residential investment. Fixed nonresidential investment had a neutral impact on economic activity, while import activity was a drag. The BEA will update its GDP estimate twice over the next two months.   

The U.S. economy expanded at its historical average in September. The Chicago Fed National Activity Index (CFNAI) jumped 24 basis points to a reading of +0.02. (A 0.00 reading for CFNAI means the U.S. economy grew at its historical average.). Forty-seven of the CFNAI’s 85 components made positive contributions to the index, while the other 37 represented drags on economic activity. Among four major categories of index components, those associated with production and employment made modest positive contributions. Small negative contributions came from components linked to sales/orders/inventories and personal consumption/housing. The CFNAI’s three-month moving average was a neutral 0.00 (up 14 basis points from August). 

Consumer spending and core inflation increased in September. The Bureau of Economic Analysis reports real Personal Consumption Expenditures (PCE) advanced a seasonally adjusted 0.4 percent, up from August’s 0.1 percent gain. Goods spending grew 0.5 percent, split between increases for durables and nondurables of 1.1 percent and 0.2 percent, respectively. Services expenditures were up 0.3 percent for the month. Without adjustments for inflation, nominal PCE surged 0.7 percent, well above the 0.3 percent rise for nominal personal income and disposable income. Real disposal income fell 0.1 percent. The savings rate fell by 6/10^ths of a percentage point to +3.4 percent (September 2022: +4.7 percent). The PCE Price Index, the Federal Reserve’s preferred inflation measure, increased 0.4 percent during the month and 3.4 percent over the past year. The core PCE Price Index, which removes energy and food, grew 0.3 percent in September and 3.7 percent over the past 12 months. Both indices were above the Fed’s two-percent inflation target. 

Consumer confidence deteriorated in October. The University of Michigan’s Index of Consumer Sentiment lost 4.1 points to a seasonally adjusted 63.8 (1966Q1=100). While this was the index’s lowest reading since May, it remained up 3.9 from a year earlier. The current conditions index shed a half point to 70.6 (October 2022: 65.6), while the expectations measure dropped by 6.5 points to 59.3 (October 2022: 56.2). The press release noted much of the decline was from “higher-income consumers and those with sizable stock holdings.” Rising were one-year inflation expectations, up a full percentage point to +4.2 percent. 

New home sales rose and prices fell in September. New single-family home sales surged 12.3 percent to a seasonally adjusted annualized rate (SAAR) of 759,000. The Census Bureau measure was up 33.9 percent from a year earlier. Sales increased in all four Census regions on both a month-to-month and year-to-year basis. The 435,000 new homes available for sale, up 0.7 percent for the month but off 5.4 percent from a year earlier, was the equivalent to a 6.9-month supply. The median sales price of $418,800 was off 12.3 percent from a year earlier. 

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending October 21, 2023, First-Time Claims, seasonally adjusted): 210,000, +10,000 vs. the previous week, Unchanged vs. the same week a year earlier). 4-week moving average: 207,500 (+3.3% vs. the same week a year earlier). 
• Pending Home Sales (September 2023, Index (2001=100), seasonally adjusted): 72.6 (+1.1% vs. August 2023; -11.0% vs. September 2022). 
• Durable Goods (September 2023, New Orders for Manufactured Goods, seasonally adjusted): $297.2 billion (+4.7% vs. August 2023). 
• Bankruptcy Filings (12-Month Period Ending September 30, 2023, Business and Non-Business Bankruptcy Filings): 433.658 (+13.0% vs. 12-month period ending September 30, 2022). 
• Monthly Treasury Statement (Fiscal Year 2023, Budget Deficit): -$1.695 trillion (+23.3% vs. Fiscal Year 2022). 

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