Our First Look at Third Quarter GDP

The market will get its first look at third quarter GDP on Thursday and it’s expected to show quite a bit of deceleration from the pace of the last two quarters due to some unwinding of fiscal stimulus as well as the slowing impact of the Delta variant virus cases. For the quarter, GDP is expected to increase 2.8% annualized versus 6.7% in the second quarter and 6.3% in the first quarter. In fact, it’s expected to be the lowest quarterly GDP since the severe contraction of –31.2% annualized in the second quarter of 2020.

Personal consumption, which comprises two-thirds of GDP, is expected to slow to 0.8% versus 12.0% in the second quarter as the absence of stimulus checks and the arrival of the Delta variant kept many consumers away from stores and other people. The fourth quarter is expected to rebound a bit with expectations of 4.9% annualized growth as consumer spending rebounds to 4.0% as virus cases recede.

The other big report of the week will be Personal Income and Spending for September. While the numbers are part of third quarter GDP it’s informative to see what kind of momentum we have heading into fourth quarter. Expectations are for decent spending but off the surprising pop in August. The Core PCE is expected to increase 0.2% MoM but tick up to 3.7% YoY from 3.6% in August.


Treasuries

Treasury Curve Today Week Change
3 Month 0.05% +0.01%
6 Month 0.06% +0.01%
1 Year 0.11% +0.01%
2 Year 0.45% +0.01%
3 Year 0.77% +0.01%
5 Year 1.21% +0.03%
10 Year 1.66% +0.06%
30 Year 2.11% +0.08%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.17%
12 Mo LIBOR 0.32%
Swap Rates  
3 Year 0.938%
5 Year 1.290%
10 Year 1.686%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Oct 26 S&P CoreLogic 20-City Home Price (YoY) Aug 20.0% 20.0% 19.95%
Oct 26 New Home Sales Sep 2.2% 2.2% 1.5%
Oct 26 Conference Board Consumer Confidence Oct 108.5 108.5 109.3
Oct 27 Durable Goods Orders Sep P -1.0% -1.0% 1.8%
Oct 27 Durables Ex Transport. Sep P 0.4% 0.4% 0.3%
Oct 28 GDP Annualized (QoQ) 3Q A 2.8% 2.8% 6.7%
Oct 28 Personal Consumption 3Q A 0.8% 0.8% 12.0%
Oct 28 Personal Spending Sep 0.5% 0.6% 0.8%
Oct 29 Core PCE (YoY) Sep 3.7% 3.7% 3.6%

 


Top 5 Events for the Week

October 25 – 29, 2021

1.  First Estimate of Third Quarter GDP— Thursday

The market will get its first look at third quarter GDP on Thursday and it’s expected to show quite a bit of deceleration from the pace of the last two quarters due to some unwinding of fiscal stimulus as well as the slowing impact of the Delta variant virus cases. For the quarter, GDP is expected to increase 2.8% annualized versus 6.7% in the second quarter and 6.3% in the first quarter. In fact, it’s expected to be the lowest quarterly GDP since the severe contraction of –31.2% annualized in the second quarter of 2020.

Personal consumption, which comprises two-thirds of GDP is expected to slow to 0.8% versus 12.0% in the second quarter as the absence of stimulus checks and the arrival of the Delta variant kept many consumers away from stores and others. The fourth quarter is expected to rebound a bit with expectations of 4.9% annualized growth with consumer spending rebounding to 4.0% as virus cases recede.

Source: Bloomberg

2.  September Personal Income and Spending- Friday

For September,  personal income is expected to decrease  -0.2% versus 0.2% in August.  Personal spending, meanwhile, is expected to have increased 0.6% versus 0.8% in August.  The all important inflation number in the report that the Fed prefers (Core PCE) is expected to increase 0.2% MoM versus 0.3% in August and 3.7% YoY versus 3.6% in the August print. The FOMC meeting next week is the one where tampering details will be released, but Powell is likely to be questioned too about whether the Fed has additional concerns about the stickiness of inflation versus their transitory call earlier in the year. A miss to the upside here would will only add pressure to the Fed and probably continue to accelerate rate hiking expectations.

3. October Consumer Confidence – Tuesday

With two-thirds of the economy consumption-based it’s always important to look at the confidence of the consumer for tells on future spending and hence GDP.  With both the University of Michigan Sentiment reading and the Conference Board’s measure struggling of late they are taking on added significance. The Conference Board’s confidence reading is expected to tick down to 108.0 versus 109.3 in September.  Consumer confidence this year peaked in June at 128.9 but has been drifting lower since as inflation and delta variant cases dominated news headlines.  The lack of a more significant bounce what with virus cases receding may concern the Fed and investors given the weight the consumer pulls in the economy.

4. September Durable Goods Orders—Wednesday

The manufacturing side of the economy has been strong since the early days of the pandemic, not having the face-to-face constraints of the more service-oriented businesses. Consumer consumption has also focused more on hard goods over services and durable goods orders have followed suit in posting solid activity during much of the pandemic. The current thought is that with the economy reopening more and more that the services-side of the economy will take a hand-off from the manufacturing side and carry the economy in the second half of 2021. That hand-off may be beginning to happen as September orders are expected  to decrease –1.0% versus 1.8% in August. However, orders less the volatile transportation sector are expected to increase 0.4% versus 0.3% in August. Thus, expectations are that the durable goods side of the economy will post another solid result for September with little sign of softening.

5. September New Home Sales-Tuesday

While new home sales only account for about 10% of the housing market they do bring with it all the elements that go into the construction of a home and so it is an important input to GDP and also to the health of the housing market. For the month of September, sales are expected to nearly replicate August’s activity.  Sales are expected to increase 2.4% month-over-month to 758,000 units sold on an annualized basis versus August’s 740,000. This is in keeping with the other housing-related reports that are showing a slight rebound after several months of modestly slowing activity due to higher rates and limited supply.

 


Yield Universe

Source: SouthState Bank Trading Desk

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Published: 10/25/21 Author: Thomas R. Fitzgerald