Stocks Open Lower as Q3 GDP Data Reveals Accelerated Growth Rate
The US economy recorded a faster-than-expected expansion in Q3 2023, driven by robust consumer and government spending and sticky inflation, among other things. In particular, the Gross Domestic Product (GDP) expanded by 4.9% in the third quarter, surpassing the estimated 4.2% increase.
Q3 GDP Growth Driven by Strong Consumer Spending and Increased Inventories
The real US GDP saw an annualized growth rate of 4.9% in Q3, according to the first estimates by the US Bureau of Economic Analysis (BEA). The expansion compared to the 2.1% growth registered in Q2 and exceeded market estimates of 4.2% by some distance.
“The increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending, and residential fixed investment that were partly offset by a decrease in nonresidential fixed investment.”– the BEA stated in its press release.
“Imports, which are a subtraction in the calculation of GDP, increased,” the Bureau added.
Moreover, the price index for GDP rose 3%, and the Personal Consumption Expenditures (PCE) Price Indes was a 2.9% jump, up from 2.5% in the previous quarter. Excluding food and energy costs, the PCE Price Index advanced 2.4%, down from 3.7% in Q2.
The new data comes a day before the release of the monthly Core PCE Price Index, which serves as the Federal Reserve’s preferred measure of inflation. This metric is an accurate indicator, offering insights into specific monthly data rather than an average.
The expansion in Q3 GDP weighed on the greenback, although the US Dollar Index remained up around 0.13% at the time of writing, at 106.67. In the meantime, the S&P 500 opened 0.65% lower at 4,159, while the tech-focused Nasdaq-100 slipped by 1%.
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GDP Data May Complicate Fed’s Decisions, But New Rate Hikes Still Unlikely
Notably, the GDP growth marked the biggest gain since Q4 2021. While it underscores the remarkable resilience of the US economy, it may make the jobs of Federal Reserve policymakers a bit more difficult.
To be more specific, the report could encourage the US central bank to keep the ‘higher for longer’ rate narrative alive. However, markets are still seeing a 97% chance that the Fed will not hike rates at the upcoming meeting in November, while the odds of a December rate hike are currently sitting at just 27%.
Considering the new GDP report and other recent economic data, when do you think the Fed will begin cutting interest rates? Let us know in the comments below.