Advance GDP beat forecasts as September PCE inflation accelerated to 0.5% monthly.
Why it matters: Resilient growth could reduce pressure on the Federal Reserve to cut rates quickly, while inflation above its 2% target could keep borrowing costs higher for longer.
- Third-quarter real GDP rose at a 3.4% annualized rate, up from 2.2% in the second quarter and above FactSet's 3.0% forecast.
- Consumer spending rose at a 3.8% annualized rate, while nonresidential fixed investment, which excludes housing, increased 12.7%.
- Headline PCE inflation rose 0.5% month over month in September, up from 0.3% in August, and 3.6% year over year; core PCE rose 3.1% annually.
- The Fed held its policy range at 3.75%-4.00% on October 28 in a 10-2 vote.
The U.S. economy grew faster than expected in the third quarter, even as inflation accelerated in September. The Bureau of Economic Analysis said in its advance estimate that real GDP increased at a 3.4% annualized rate, compared with 2.2% in the second quarter.
CNBC cited a 3.0% FactSet consensus forecast for third-quarter growth.
Investment, consumer spending and government spending supported the expansion. Consumer spending rose at a 3.8% annualized rate, while nonresidential fixed investment, which excludes housing, increased 12.7%. Information-processing equipment investment rose 37.4%, software investment increased 9.6% and research-and-development investment grew 7.5%. Housing investment fell 3.3%.
At the same time, the BEA reported that headline PCE inflation rose 0.5% month over month in September, up from 0.3% in August, and 3.6% from a year earlier. Core PCE, which excludes food and energy, increased 0.3% for the month and 3.1% annually. September's annual increase was below the 3.7% pre-release consensus projection cited by CNBC but remained above the Fed's 2% target.
Nominal consumer spending rose 0.5% month over month. Real consumer spending increased by less than 0.1% month over month, while real disposable income fell 0.3% month over month.
The figures arrived one day after the Federal Reserve held rates steady. The central bank said economic activity was expanding at a strong pace and stated, “Inflation remains elevated.”
By the numbers
- 3.4% - annualized third-quarter real GDP growth
- 0.5% - September monthly headline PCE inflation
- 3.6% - September headline PCE inflation from a year earlier
Yes, but: The GDP figure is an advance estimate and may be revised. September's annual PCE increase was below the 3.7% consensus projection cited by CNBC, even as it remained above the Fed's 2% target.