Markets with Megan

What if the backbone of our economy is powered by consumers spending on borrowed time? Today, Megan reviews the third-quarter GDP report, revealing how a modest 2.8% growth rate is largely driven by relentless consumer spending and federal government contributions. Despite the growth coming in slightly below expectations, the consumer's role in bolstering the economy is undeniable. She examine the implications of this consumer-driven expansion, particularly as individuals turn to credit in maintaining their spending habits. Our discussion also touches on the implications for Federal Reserve policies, especially with the core PCE price index edging closer to the Fed's inflation target.

In dissecting these economic trends, Megan considers what this means for future interest rate decisions. Should the Federal Reserve adopt a cautious stance with rate cuts, given the robust consumer activity? Will continued spending jeopardize the progress made in containing inflation? Join us in this episode as we analyze these crucial questions. Stay informed, share this episode with those who would benefit from our insights.

The economy just keeps trudging on. That's what we saw today. It is Wednesday, october the 30th, and we're here to talk about the advanced reading of third quarter GDP that we got this morning. Remember, we get several readings on GDP. There's room for plenty of revisions here, but let's just dig into what we saw in the advanced readings. This is the first reading we get.

The street was looking for 2.9% growth in the third quarter. We got 2.8. So that's pretty close to the consensus, modestly lower than the prior quarter, which was 3%. The majority of this growth, though, was all in the consumer, and we continue to see the consumer defy all expectations, including ours, and the consumer just keeps spending. If you look at the contribution to the GDP, the consumer basically made up the entire GDP. That part the consumer spending on services, specifically household consumption, and then federal government spending. This is basically what drove GDP in the third quarter.

Now what's the Fed going to look at? We like to look at the inflation component of this, and the core PCE price index rose 2.2%. The street was looking for an expectation of 2.1%, so a little bit hotter, but by a very, very fine margin, and it is getting closer to the Fed's target of 2% and it's down from a 2.8% reading in the prior quarter. So what do we make of this report? The economy still is trudging along, driven primarily by the consumer, and we've often said the consumer is our biggest concern going forward, because they're spending on fumes, they're using credit cards to continue spending. And then the other side of this that the Fed needs to watch closely is if the consumer continues to spend at this aggressive pace, what will that do to inflation going forward? Will it stall that progress that they've made in inflation?

So the Fed's going to be looking at this closely Again. It's a solid number. It does not warrant another 50 basis point rate cut, in our opinion. In fact, I think that they'll probably be more gradual with their rate cuts as they go forward. That's all we have today. We'll be back tomorrow with some more economic news and if you like this podcast, please hit that subscribe button, hit the alarm bell, share it with friends, family or colleagues, and if you'd like any of our prior podcasts, you can go to marketswithmeganfm. Thank you.