Fourth Quarter Growth Takes Off

Third quarter GDP slowed to an annual rate of 2.0% from Q2’s 6.7%.

But early data suggest the economy is off to a quick start in Q4. 

  • First-time claims for unemployment insurance are down sharply over the last six weeks and are at a pandemic low—Dept of Labor.
  • Retail sales jumped 1.7% in October, more than double expectations—Econoday/U.S. Census, though some of the increase is likely higher prices.
  • The Atlanta Fed’s GDPNow model is tracking Q4 GDP at 8.2%.
  • Moody’s, which has a similar model, places growth at a still-strong 7.4%.

It’s still early in the quarter and strong data could moderate, but it’s an impressive start. 

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The Case for “Transitory” Loses Ground

For much of the year, we have listened to Federal Reserve officials argue that the surge in inflation is “transitory.” Transitory simply means temporary. Yet, the latest inflation numbers suggest the Fed’s line of reasoning is losing some of its punch.

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The Fed’s Baby Steps

The Fed has been “talking about talking about tapering” for months. Last week, it stopped talking and started doing.

The Fed will begin tapering its $120 billion in monthly bond buys by $15 billion per month in November and December. It will probably continue at that pace but could adjust next year depending on economic conditions.

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Economic Growth = Job Growth

If we were to review just two economic yardsticks—job growth and layoffs—we would get a feel for what’s happening to the economy. It wouldn’t be precise, but it would be more like a back-of-the-envelope review. So, let’s look at both reports.

On Friday, the U.S. Bureau of Labor Statistics reported nonfarm payrolls rose by 531,000 in October, while August’s and September’s readings were revised significantly higher. The unemployment rate fell to 4.6% in October from 4.8% in September. 

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