Solid Economic Growth with Signs of Cooling: Navigating GDP Gains, Inflation Slowdown, and Labor Market Challenges

Economic growth was solid in the third quarter, with GDP growth of 2.8%, driven mainly by personal consumption. However, a drop in net exports affected growth. Imports increased, attributable to preparations for a brief strike at East Coast ports. Core PCE inflation, a key indicator for the Fed, slowed to 2.2%, which may favor a more accommodative approach to monetary policy. In response, market futures fully discount a 0.25% rate cut by the Fed at its next meeting, with another potential in December.

The manufacturing sector, however, continues to decline; the ISM index fell from 47.2 in September to 46.5 in October, marking a contraction.

In October, the U.S. labor market showed lower than expected growth in non-farm payrolls, with only 12,000 new jobs, affected by hurricanes and a machinists' strike against Boeing, which reduced 44,000 jobs. The Bureau of Labor Statistics was unable to quantify the exact impact of the weather events. Even so, other indicators such as unemployment claims do not suggest a considerable weakening in the labor market. As for labor costs, they grew by 3.9% year-on-year in the third quarter, slightly less than in the previous quarter (4.1%), but showing pressure on wages.

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