2015/11/25

Done Deal? All Signs Point To December Rate Hike As Q3 GDP Revised Higher

Out Tuesday The Bureau of Economic Analysis’ second estimate of change in real gross domestic product for July, August and September of this year showed the economy growing at a faster rate than previously thought. The report is another indication the Fed Chair Janet Yellen and co. will raise rates at its next meeting in December — as if one was needed. 
U.S. economic growth increased 2.1% in the third quarter. That’s up from the agency’s advance estimate of 1.5% released last month, although its a deceleration from the second quarter when real GDP grew 3.9%. 
“Although the report confirmed that the economy softened in the third quarter, the news remains largely positive,” wrote Jim Baird, chief investment officer at Plante Moran Financial Advisors in a note.  ”All things considered, the economy appears to be advancing solidly – albeit unevenly, as demonstrated by the wide swings in top-line growth over the past several quarters.  Against a backdrop of a broader global slowdown, however, one has to be encouraged by the resilience of the consumer sector, ultimately pushing the U.S. economy forward.”
The latest in a string of solid, if not awe inspiring, economic indicators, the GDP report adds to the growing body of evidence the Fed will begin raising interest rates next month. “There is nothing in the GDP report that would deter the Federal Open Market Committee from raising the federal funds rate when it meets in mid-December,” wrote PNC Senior Economist Gus Faucher in a note.
Since clearly indicating they would seriously consider a December move in thestatement following the Federal Open Market Committee’s last meeting the policy makers have sought to make their preference for that outcome plain.
Speaking at a conference on Asia Economic Policy at the San Francisco Fed, Vice Chairman Stanley Fischer gave another clear indication, saying: “While we continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move.”
Leading up to the report futures trading indicated stock markets would open sharply lower Tuesday, and the GDP report did little to change the momentum in either direction.
The increase in GDP compared to BEA’s earlier estimate is due to a smaller than previously thought decline in private inventory investment. The overall growth was driven by personal consumption expenditures, nonresidential fixed investment, state and local government spending, residential fixed investment and exports. These were partly offset by lower private inventory investment and an increase in imports, which negatively impact GDP.
The price index for gross domestic purchases — which measures prices paid by U.S. residents — increased 1.3% in the third quarter, compared to a 1.5% increase in the second. 
The BEA also said profits from current production decreased $22.7 billion in the third quarter, compared to an increase of $70.4 billion in the second. 
BEA — a division of the Department of Commerce – will release its third estimate of Q3 GDP on Tuesday, December 22.
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