There was more good news of the bad variety out of the US economy on Thursday.
I don’t typically cover second and third revisions to the GDP figures. They’re usually immaterial to the macro narrative, particularly given that by the time the final estimate is available, the next quarter is nearly finished.
But, the third read on Q3 GDP came with sizable upward revisions, underscoring the Fed’s contention that the economy was nowhere near recession headed into Q4 and therefore unlikely to buckle under the weight of a few more rate hikes.
The headline print was revised to 3.2% from 2.9% (figure below). As a reminder, it was 2.6% initially.
Consensus expected no change from the second estimate.
That alone wouldn’t have moved any needles, but the personal consumption component was revised up too, suggesting (again) that the US consumer wasn’t anywhere near tapped out headed into the holiday shopping season.
At 2.3%, the third read on spending was up markedly from the first and second estimates (1.4% and 1.7%, respectively).
Notably, the final personal consumption print was more than double consensus expectations for the first estimate (figure above).
Take a moment to consider this: As originally reported, consumption ran at the second-slowest pace of the pandemic era in Q3. The final revision suggested consumption was actually brisker in the third quarter than it was in the second.
Insult to injury for “Team Transitory” and allied policy doves was a slight upward revision to the core PCE print to 4.7% from 4.6%. That was immaterial considering recent developments on the inflation front, but as BMO’s Ian Lyngen remarked, it’ll “be a check in the column for at least another 50bps of aggregate hikes, if not 75bps in 2023.”
Treasurys sold off and the curve flattened when the data was released. Concurrently, initial claims came in below estimates, and although continuing claims rose from the prior week, they too were short of consensus.
Remember: One underappreciated risk for 2023 is the absence of recession.
Growth hurting growth stocks, kind of amusing
One of my smartest doctoral profs used to point out that when one is judging the potential outcomes of an endeavor that somehow fails, one should also be sure they account for all the ramifications of unexpected success. Too much success or success that happens too quickly can outstrip the capacity of the resources allocated to the venture at hand, creating a disaster that while different from that arising from failure, is every bit as dangerous.
…outstanding and extremely relevant comment and recollection…these days have a very unprecedented feel to them…
I believe the core PCE inflation report is released tomorrow (unless I got my dates confused). If core PCE were to come in cooler than expected…., and GDP remains robust, then we can avert recession and have somewhat of a Goldilocks situation. Hope springs eternal 🙂
“One under appreciated risk for 2023 is the absence of recession” – even with Federal Reserve raising short term interest rates in 2023, it won’t be enough to counteract the stimulus and inflationary impact of the US fiscal policy (so much unnecessary spending in the $1.7T budget package), so the Fed will have either have to raise rates a lot more than they are broadcasting to offset Congressional drunken sailors (both of the Republican and Democratic varieties) or there is a “ceiling” over which the Fed can’t raise rates without risking a global meltdown and we will be living with high levels of inflation for longer.
Oh joy!