The world’s largest economy probably expanded at the quickest pace in nearly two years during the third quarter on the back of a steadfast US consumer, a challenge for Federal Reserve officials who are debating whether additional policy tightening is needed.
Gross domestic product advanced at a 4.3% annualized pace in July-September, according to the median projection in a Bloomberg survey of economists. Such growth illustrates that the US remains the global economic powerhouse as Europe stagnates and Asia contends with a struggling China.
Personal consumption, the primary engine of the US economy, is projected to advance at a 4% rate. Resilient demand is testing the policy skills of Fed officials after nearly two years of interest-rate hikes. While inflation is well off its peak, price pressures are still running almost twice as fast as their goal.
Thursday’s GDP report won’t be enough to nudge the Fed toward a November rate increase, but sustained spending momentum in the fourth quarter would likely raise the prospects for additional tightening around the turn of the year.
“Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Fed Chair Jerome Powell said at the Economic Club of New York on Thursday.
September income and spending data on Friday will give a sense of the momentum in household demand and inflation ahead of the fourth quarter.
Forecasters see a 3.7% increase in the core personal consumption expenditures price index, which is one of the Fed’s preferred measures because it excludes often-volatile food and energy costs. That would be the smallest annual gain since May 2021 and consistent with modest progress on inflation.
What Bloomberg Economics Says:
“Real 3Q GDP likely surged to a 4.7% annualized pace with consumers accelerating their spending to an unsustainable 4.2% pace amid a frenzy of summer travel and entertainment… We expect consumption to slow in 4Q given elevated inflation, high rates and the resumption of student-loan repayments. The Fed’s tightening cycle is taking time to hit the real economy, but we believe higher mortgage rate, credit card debt and business-loan defaults will hit growth this quarter.”
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For full analysis, click here
Turning north, the Bank of Canada rate decision on Wednesday will feature fresh projections for inflation, growth and the risk landscape for the economy. Governor Tiff Macklem is widely anticipated to maintain a pause while threatening that more hikes may be needed.
Elsewhere, the European Central Bank may also keep rates on hold, Israeli officials take their first decision since war broke out, Chilean policymakers will probably cut borrowing costs, and peers in Russia and Turkey are likely to deliver large hikes.
Asia
China’s top legislators, the standing committee of the National People’s Congress, meet through Tuesday and are likely to discuss a proposal for the early issuance of new local government debt and the appointment of key personnel.
China will also report on industrial profit in data that could show a continued recovery, as investors keep a close eye on the state of the world’s second largest economy.
In Japan, Prime Minister Fumio Kishida is likely to mull the results of special elections held over the weekend, with disappointing polling potentially encouraging further spending.
Tokyo inflation figures at the end of the week may give insight into whether price growth in Japan is continuing to slow, while investors are likely to keep a close watch on rising yields and the weak yen as the next Bank of Japan policy meeting looms at the end of the month.
South Korea’s early trade data on Monday will provide a snapshot on the state of global demand, as will the country’s third quarter growth data.
Elsewhere in the region, Singapore releases inflation numbers and Thailand reports on trade.
Reserve Bank of Australia chief Michele Bullock speaks on Tuesday, with the country’s latest quarterly inflation figures out the following day. They may be pivotal in determining whether the RBA resumes raising rates at its Nov. 7 meeting.
Europe, Middle East, Africa
The UK will release a second batch of labor-market data on Tuesday, which may confirm a picture of waning momentum.
The same day, purchasing managers indexes in Britain and the euro zone are likely to show the contraction in manufacturing persisting in October, though possibly easing off its pace of deterioration.
Other euro-area reports in the coming week include consumer confidence on Monday and, two days later, Germany’s Ifo index, which is anticipated to show only mild improvement in business sentiment in Europe’s biggest economy.
Spanish gross domestic product on Friday is the first from the area’s key members showing what happened in the third quarter. The report is expected to show output defied weakness elsewhere to support a 10th quarter of expansion.
At the ECB on Thursday, policymakers led by President Christine Lagarde are anticipated to keep borrowing costs on hold for the first time since June 2022, though they may signal that they can resume tightening if needed. Officials could well discuss the prospect of paring back bond holdings in future too.
Meanwhile, some of the biggest money managers in Europe say traders are wrong to bet the ECB is done hiking interest rates.
A series of other key decisions are due from central banks around the region:
- Israeli officials on Monday review policy for the first time since war broke out. With the shekel near an eight-year low before a likely ground invasion of Gaza, the central bank has signaled its focus is currency stability, meaning a rate cut is probably off the table.
- Hungarian officials on Tuesday are poised to start slowing their easing cycle after five consecutive full-percentage point monthly reductions, to 13%. That’s still by far the highest rate in the European Union.
- In Turkey, another large hike is anticipated on Thursday after inflation topped 60% last month, the fastest this year. While the central bank has more than tripled its key rate to 30% in four steps, price pressures are still intense.
- On Friday in Russia, policymakers may add to three straight hikes in borrowing costs. With officials forecasting inflation at 6% to 7% this year, price pressures are likely to influence the decision, not least as the ruble’s slump has prompted the government to reimpose capital controls.
The week ends with a flurry of sovereign credit reviews. Belgium, Botswana, Bulgaria, Finland, France, Italy and Sweden are among countries with assessments scheduled by major ratings companies.
Latin America
Mexico’s bi-weekly inflation report posted Tuesday should show a modest cooling in both the headline and core prints, though both remain over the central bank’s 3% target.
Even so, one Banxico board member recently said that upcoming decisions will be “very data-dependent” and that policymakers are open to putting off the start of an easing cycle until mid-2024.
In the region’s biggest economy, Brazil’s mid-month inflation print may have inched down from 5% posted in mid-September, keeping the central bank on track to continue 50 basis-point rate cuts through year-end.
Argentina reports its GDP-proxy data for August on Tuesday. Triple-digit inflation and tight currency and import controls are pushing Argentina into its sixth recession in a decade, and have some analysts forecasting a second year of negative growth in 2024.
Mexico also delivers its August GDP-proxy data, which should show a 22nd straight month of year-on-year growth, along with its September unemployment rate. Minimum wage hikes and a strong domestic economy have made for a tight labor market.
In Chile, given steady disinflation and what policymakers see as below-potential growth, the central bank is all but certain to deliver a third straight jumbo rate cut from the current 9.5%.
