U.S. economic growth, a priori, remained robust in the third quarter. The Atlanta Fed’s GDPnow estimates GDP growth at +0.8% q/q (+0.1pp compared to Q2 2024). Household consumption remains the principal driver, as illustrated by the acceleration of the retail sales control group in September (+0.7% m/m, +0.4pp). Activity in services improved in the same month in view of the jump in the ISM non-manufacturing index to 54.9 (+3.4pp). On the other hand, the ISM manufacturing index remained in contraction territory, stable at +47.2 despite the improvement in the “output” component (+5.0pp).
After the aggressive start in September (-50 bps), the Fed should slow down the pace of its rate cuts. The surprising strength of the employment situation in September goes in this direction. Net creation of nonfarm payrolls accelerated significantly, reaching a 6-month high (+254k, +95k m/m). This was also accompanied by upward data revisions for July and August (+72k aggregated). At the same time, wage growth also accelerated slightly (+4.0% y/y, +0.1pp), while the unemployment rate fell slightly (4.1%, -0.1pp).
At the same time, CPI figures for the same month showed moderate progress on the disinflation front, with the drop in headline inflation (+2.4% y/y, -0.2pp) coexisting with stable core inflation (+3.3% y/y). Ultimately, we expect a drop in the policy rate (-25 bp) per remaining FOMC meeting in 2024 (November and December), bringing the target rate to +3.5% - +3.75%.
Surprisingly, given these good growth and employment figures, sentiment among economic agents continues to underperform. Consumer confidence, as measured by the Conference Board, fell in September (105.6, -6.9 pts). The deterioration in perception of the labour market is clear: the gap between respondents who find jobs “abundant” and “hard to get” has narrowed to +12.6pp, its lowest result – excluding the pandemic – since 2017. On the small business side, in September, their optimism only increased marginally (91.5, +0.3 pt), failing to improve sustainably since the collapse at the end of 2021; while the uncertainty index is rising as the presidential election approaches.
Article completed on 24 October 2024
