US Economy Resilient, But Consumers Give (Rate Hike) Pause?

The United States quickened its rate of economic expansion as measured by Gross Domestic Product, and in fact notched its fastest pace in two years.

The headline number for third quarter GDP growth stood at 2.9 percent, on an annualized basis, according to data released Friday by the US Department of Commerce.  The growth came as investment in inventories grew, and exports grew too, largely in the form of foodstuffs.

Most immediately, the GDP numbers will likely have some impact on the US presidential elections due to be held just days from now.  It may the case that Republican presidential nominee Donald Trump may have lost one of his key arguments for change in the Oval Office, as he has time and again pointed to “failed” economic policies of the current Obama administration.

But the impact of today’s numbers may be felt, and be discussed, far beyond the voting booth.  Can exports be considered to be a reliable horse to draw the US cart — after showing a 10 percent annualized gain? Higher inventories mean businesses and other entities have sunk money into goods in hopes that consumers will buy them.

But in fact consumer spending has shown some markedly slower growth, up only two percent in the period just tallied, and that is down from previous rates of north of four percent.  Wage growth took on roughly the same pace of the consumer spending uptrend, gaining 2.4 percent, and just slightly lower than past figures of 2.5 percent.

Looking at the payments universe, there’s a bifurcation of sorts looming. Overall, yes, there is growth and no less than Mastercard pointed to the US this morning as still “holding steady.”   But consumer spending growth slowing may not augur well for at least the near term (as in holiday spending, which bodes ill, for Amazon and other eCommerce players, for example).

And, looking at the stock market, the newest data are arriving in advance of yet another Federal Reserve meeting that will focus on whether or not to raise rates.  The question, as always, is when, and by how much.

The continual parlor game of Wall Street has baked in the “how much” at a quarter point and is looking for the when to come in December.  Yet the inflation rate, as noted by the Friday report, seems to be still tepid, at just below two percent. One might think the consumer slowdown in spending growth might give Yellen and company pause, pushing a rate hike out yet again?  Broadly speaking, that means stocks would remain the more attractive area for investors to sink their money.