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Macro Developments Since Sep FOMC - Growth: An Extremely Strong Q3

  • Evident from early on in the quarter, the economy has shown no sign of letting up its very strong momentum in Q3, in what has mainly been a consumption-led recovery after a tepid Q2 for personal spending.
  • Real GDP growth printed 4.9% annualized in Q3, its strongest since 4Q21 to beat consensus of 4.5%. However, retail sales coming in much stronger than expected for September and the Atlanta Fed GDPNow tracking at 5.4% annualized probably at least partly helped set the scene for a sizeable fixed income rally despite the beat.
  • Some of the gloss of the strong GDP print was also taken off by changes in net inventories accounting for 1.3pps of the quarterly increase.
  • Further, latest monthly personal income and spending data have shown a sharp run back lower in the household savings rate back to late 2022 levels and closing in again on last year’s recent lows, after a push higher in Q2 had heavily dampened consumption growth. With real disposable income falling in the past three months of data, it will take a further running down of the savings rate to boost consumption from here if this continues.
  • Nevertheless, this recent surge in growth has been extraordinary at the current stage of the hiking cycle.

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