The Federal Reserve's key inflation rate came in a touch higher than expected in the third quarter, while U.S. GDP growth didn't grow quite as fast as expected, despite robust consumer spending. After the data, the S&P 500 opened down just a hair as markets also reacted to a raft of earnings reports.
Also on Wednesday morning, the ADP jobs report preview showed that private-sector hiring surprisingly strengthened in October. Yet ADP has typically been an unreliable predictor of what Friday's jobs report will reveal.
GDP Growth
The U.S. economy grew at a 2.8% rate in Q3, below forecasts of 3% growth, following Q2's strong 3% pace.
Personal consumption expenditures grew at a 3.7% rate, ahead of 3% forecasts and an acceleration from 2.8% the prior quarter.
Private fixed investment slowed to a 1.3% annual growth rate, the weakest since the end of 2022. Investment in nonresidential structures fell at a 4% rate, but equipment investment jumped 11.1%.
Inventories and net exports subtracted from 0.7 percentage point from GDP growth, accounting for the miss.
Primary Fed Inflation Rate
The Federal Reserve's primary inflation gauge, the core PCE (personal consumption expenditures) price index, rose at a 2.2% annual rate in Q3, just above 2.1% forecasts. In Q2, the key Fed inflation rate had climbed at a 2.8% rate.
Headline inflation slowed to a 1.5% annualized rate in Q3, down from 2.5% in Q2.
The quarterly core PCE inflation data provides a preview of Thursday's big inflation report, which will break out monthly increases in the core PCE price index.
ADP Employment Report
Payroll processor ADP reported 233,000 new private-sector jobs in October, way above 115,000 estimates, according to the Econoday consensus forecast. Predictions ranged from 75,000 to 129,000.
September job growth, initially reported at 143,000, was revised up to 159,000. However, that's still well below the 223,000 private job gain reflected in official September data from the Bureau of Labor Statistics.
The next official jobs report out Friday is expected to show that employers added 125,000 workers to payrolls, including 90,000 private-sector jobs, as the unemployment rate held at 4.1%.
October jobs growth was dampened by the impact of labor strikes, primarily on Boeing workers and contractors, as well the effects of Hurricane Milton.
Fed Rate-Cut Outlook
After the ADP jobs report and GDP releases, markets were pricing in 98% odds of a quarter-point rate cut at the Nov. 7 Fed meeting, according to CME Group's FedWatch page.
Markets see 71% odds of a further quarter-point rate cut at the final Fed meeting of the year on Dec. 18.
However, markets over the past month have been scaling back expectations of the extent of Fed rate cuts in 2025 as incoming data has showed that the economy remains in pretty solid shape.
S&P 500
The S&P 500 traded off less than 0.1% after the GDP and ADP jobs report. On Tuesday, the S&P 500 edged up 0.2%. That left the S&P 500 just 0.5% below its all-time closing high on Oct. 18 and up 22.3% for the year.
The 10-year Treasury yield eased four basis points to 4.23% after the data.
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