Resilient Consumption and Housing Strength Highlight the Week

The week in the United States was dominated by a series of economic, market, and political news stories that paint a complex picture as the third quarter draws to a close. On the economic front, data confirmed the strength of growth. Second-quarter GDP was revised upward to an annualized 3.8%, its highest level since 2023, driven by private consumption. Personal income grew 0.4% in August, while spending accelerated to 0.6%, the largest increase in five months, reflecting still-solid domestic demand despite persistently high prices. The real estate market surprised with a 20.5% jump in new home sales, the best performance since early 2022, while the goods trade deficit fell to USD 85.5 billion, well below expectations. However, leading indicators suggested some moderation: the composite PMI fell to 53.6 points in September from 54.6 in August, and consumer confidence as measured by the University of Michigan fell to 55.1 points, the lowest since May. On the inflation front, the PCE rose 0.3% month-on-month in August, bringing the annual rate to 2.7%, while the core rate remained at 2.9%. These data, together with stronger durable goods orders and unemployment claims at their lowest since July, led markets to moderate their expectations of rate cuts by the Federal Reserve towards the end of the year.

In financial markets, appetite for safe assets remained evident, with money market funds reaching a record USD 7.7 trillion. However, signs of stress emerged in the USD 1.7 trillion private credit market, with rising default rates and more borrowers deferring cash payments. On the real estate front, in addition to the strong rebound in new homes (+20.5%), existing home sales exceeded expectations, although they remained virtually flat. Meanwhile, rate futures reflected reduced expectations for Fed cuts, now estimating just 40 bps of monetary easing by December, compared to the 58 bps discounted after the last FOMC meeting.

READ MORE