Oct 30, 2023

Breakneck Speed

Weekly Market Commentary

The U.S. Bureau of Economic Analysis (BEA) reported last week that Gross Domestic Product (GDP), which is the largest measure of goods and services for the economy, expanded at an annual pace of 4.9% in the third quarter.

It’s the fastest growth rate since Q4 2021 when the economy was reopening, and consumers had plenty of stimulus cash in bank accounts.

When the quarter began, few saw a significant acceleration in economic growth.

According to the Atlanta Federal Reserve, the Blue Chip forecast of economic forecasters projected economic growth would nearly stall when the forecast was issued at the start of Q3.

The sharp rise in growth occurred mainly due to strong consumer spending, which makes up almost 70% of GDP (U.S. BEA).

Credit cards and cash still left in the bank from stimulus payments helped consumers go on a spending spree in Q3. But why Q3 and not the first half of the year? That’s not an easy question to answer.

Rising business inventories, along with increased government spending, including national defense, contributed to economic growth.

Government spending contributes to the federal deficit. But in the short term, higher spending increases the demand for goods and services, which aids GDP.

GDP is a backward-looking indicator, as are most government reports. It’s backward-looking because it highlights what happened in the past. In this case, GDP reviews activity between July and September. We’re about to enter November.
What will the economy do for an encore in Q4? Economic forecasting is problematic.

There is no shortage of worries. Consumer confidence is shaky, as we pointed out last week, but people are spending, and companies have been hiring.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

Job Growth Blows Past Expectations

The U.S. Bureau of Labor Statistics reported that the economy added a whopping 254,000 jobs in September, about 100,000 more than economists surveyed by Bloomberg had projected. The unemployment rate, expected to hold steady at 4.2%, slipped to 4.1%.

A Fed Rate Cut and Your Mortgage Rate

A recent online advertisement from a major bank read, “The Fed just lowered interest rates. Could refinancing save you money?” There is an implicit assumption in the ad that the Fed’s half-percentage point rate reduction brought about a significant drop in mortgage rates shortly following the decision.

Boom – Fed Opts for 50

On Wednesday, the Federal Reserve announced a 50-basis point (bp, 1 bp = 0.01%) rate cut for the fed funds rate to 4.75 – 5.00%, its first reduction since 2020. The announcement marks the end of the most aggressive rate-hike cycle since 1980 when the Fed funds rate rose a whopping 11 percentage points (1,100 bps) in just 6 months.

A Green Light for the Fed – in Three Graphs

All indications point to a rate cut by the Federal Reserve this week. What’s behind the Fed’s rationale? Let’s look at three key metrics. Aided by lower gasoline prices and stable prices for consumer goods, the rate of inflation has slowed dramatically.

August Melt-Up Follows Brief Meltdown

Market pullbacks are to be expected. They are incorporated into the financial plan. But like an unexpected traffic jam, they are exceedingly difficult to predict. Early August was one such event. The turbulence began at the end of July in the wake of seemingly minor news—the U.S. BLS reported another rise in the unemployment rate, which forced some investors to re-evaluate their view of a recession.