GDP Continues to Grow at Solid Pace, While October Labor Market Data Takes a Hit from Strikes and Hurricanes

Key Takeaways:

• Gross domestic product, adjusted for inflation, increased at a 2.8 percent seasonally adjusted annualized rate (SAAR) in Q3 2024, a slight slowdown from the 3.0 percent growth rate in Q2, according to the Bureau of Economic Analysis (BEA). Real personal consumption expenditures, the largest component of GDP, rose at a 3.7 percent annualized rate, an acceleration compared to the second quarter. Business fixed investment increased at a 3.3 percent SAAR, while residential fixed investment declined at a 5.2 percent annualized rate. Government consumption and investment rose at a 5.0 percent annualized rate, while both net exports and private inventory investment dragged on the topline figure. Final sales to private domestic purchasers, sometimes referred to as core GDP, increased at a 3.2 percent annualized rate, the fastest pace this year.
• Nonfarm payroll employment increased by 12,000 in October, according to the Bureau of Labor Statistics (BLS). The subdued figure was affected by strike activity, causing a reduction in manufacturing employment of 46,000, and hurricanes Helene and Milton, which is more difficult to quantify. Health care (+52,000) and government (+40,000) both posted strong gains, while employment in temporary help services declined by 49,000. The two prior months of data were revised downward by a combined 112,000 jobs. The unemployment rate was flat at 4.1 percent.
• The Job Openings and Labor Turnover Survey (JOLTS) showed job openings declined by 418,000 to 7.4 million in September following a downward revision to August’s data, according to the BLS. This is the lowest level of job openings since January 2021. The quits rate declined one-tenth to 1.9, the lowest level since 2015 when excluding the pandemic shock. Layoffs and discharges rose to 1.8 million, about the same level as was typical in 2019.
• The Employment Cost Index (ECI), a measure of labor compensation, increased 0.8 percent in Q3 2024, the slowest pace of growth since Q2 2021, according to the BLS. Compared to a year ago, the ECI rose 3.9 percent, a deceleration of two-tenths compared to the second quarter, though still elevated compared to pre-pandemic readings.
• Personal income, adjusted for inflation, increased 0.1 percent in September for the second consecutive month, according to the BEA. Disposable personal income also rose 0.1 percent, while real personal consumption expenditures (PCE) increased a robust 0.4 percent over the month. The PCE price index increased 0.2 percent over the month, bringing the year-over-year comparison down two-tenths to 2.1 percent, a cycle low. Core PCE increased 0.3 percent over the month and remained at 2.7 percent compared to a year prior.
• The National Association of REALTORS ® Pending Home Sales Index, which records contract signings of existing homes and typically leads closing by one to two months, jumped 7.4 percent to 75.8 in September, the highest level since March.
• The FHFA Purchase-Only House Price Index increased 0.3 percent on a seasonally adjusted basis in August, the strongest monthly growth rate since April. Compared to a year ago, home prices rose 4.2 percent, a deceleration of five-tenths compared to July.

Forecast Impact:

Topline GDP was in line with our forecast. The consumer remained strong through the third quarter, which may tilt the balance of risks for Q4 slightly to the upside. While income growth was weaker than consumption growth, the recent pattern of upward revisions to income data suggests some upside risk to this measure moving forward. We continue to believe the economy will slow to closer to its long-term trend growth rate in the following quarters, though we note that the long-term potential growth rate depends on several factors, including productivity growth and immigration flows, which at this point remain highly uncertain.

It's challenging to take much away from the October employment report given the disruptions from the strike activity and hurricanes Helene and Milton. We expect the decline of 46,000 in manufacturing employment will likely reverse next month, though the effects of the hurricanes are more difficult to precisely quantify. The BLS reported that 512,000 people were absent from work in October (up from 52,000 in September), though differences in survey methodology likely means the bounce-back in November is unlikely to be that large. Looking past the strangeness of the October report, job gains in August and September were revised downward by a combined 112,000. Combined with soft job openings and quits data in the JOLTS data for September, recent labor market data taken together suggest continued softening.

Some of the details in the PCE inflation report, such as the 0.3 percent month-over-month gain in services ex energy and housing, suggest slightly stronger inflation pressures still exist. However, the slowdown in the ECI signals to us that inflation is likely to continue to move toward the Fed’s target, albeit at a gradual pace.

Nathaniel Drake
Economic and Strategic Research Group
November 1, 2024

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