Growth – GDP and Consumer Spending

Real GDP growth slowed in 3Q24, but remained positive, largely driven by a rate of change acceleration in consumer goods spending. In y/y terms, Real Personal Consumption Expenditures (PCE) accelerated to 3.0% from 2.7% in the prior quarter. Real Goods PCE accelerated to 2.8% y/y from 2.1%, and Real Services PCE accelerated to 3.1% y/y from 2.9%.

Source: Macrobond

On a contribution basis, Real PCE, Real Goods PCE, and Real Services PCE added 2.5 percentage points, 1.3 percentage points, and 1.2 percentage points, respectively. The Goods component was the standout in Q3, doubling its contribution from Q2, while Services was roughly flat compared to the prior quarter.

Source: Macrobond

The y/y comparison set for Goods will move from a 2.4% growth rate to 3.4% in Q4 and Services will move against 2.8% from 2.4%, putting the headline against a 3.0% growth rate from 2.4%. The takeaway from that data is that the comparison set gets tougher for consumer spending in Q4, likely making it more difficult to accelerate on a rate of change basis during that period.

Source: Macrobond

Tying the macro environment back to the market, the amount of rate cuts the Fed Funds futures market is currently expecting by December 2025 has declined to 107 basis points from 200 basis points just over a month ago. This includes 25 basis points in November and 25 basis points in December, leaving just over two 25-basis-point rate cuts for 2025. Despite the rising probability that growth slows into year end, the path of interest rates and rate cut expectations are not suggesting growth measures reach recessionary levels. Similarly, the nonfarm payrolls report was shrugged off by the U.S. Treasury market, likely due to the underlying dynamics that drove the soft print. The other component to watch is inflation, which has a rising probability of accelerating in the second half of Q4. Ultimately, if growth does not slow meaningfully, labor market continues to normalize, and inflation remains elevated, rate cut expectations would likely continue their current path.

Source: Bloomberg

We get an update on the inflation front next week and will continue to monitor the market dynamic as heightened market noise related to the Presidential Election and FOMC meeting reset.

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