US: A 2.6% growth rate in Q3 overstates the strength of the economy – Wells Fargo
27.10.2022, 15:19

US: A 2.6% growth rate in Q3 overstates the strength of the economy – Wells Fargo

Data released on Thursday showed US GDP expanded at an annualized rate of 2.6% and the Price Index dropped from 9.1% to 4.1%. According to analysts at Wells Fargo, some of the underlying details of the report were not very encouraging.  Although the rate of consumer price inflation is receding, it is still way too hot for the Federal Reserve, analysts added. 

Key Quotes: 

“The underlying details of the report were not very encouraging. For starters, the headline rate of GDP growth was flattered by a 2.8 percentage point boost from real net exports. Real exports of goods and services grew 14.4% in Q3 while real imports fell 6.9%. These growth rates are not sustainable. Imports are certain to reverse course in the current quarter, and clear signs of economic deceleration in some of America's major trading partners and the strength of the U.S. dollar mean that exports likely will weaken going forward.”

“The core PCE deflator, which is the Fed's preferred measure of consumer prices, was up 4.9% in Q3 on a year-ago basis. The outturn implies that "core" prices rose 0.4% in September on a monthly basis. Consequently, we look for the FOMC to continue to tighten monetary policy. Specifically, we look for another 75 bps rate hike at the Committee's next meeting on November 2.”

“We believe that this combination of elevated inflation, which has been eroding household purchasing power, as well as the aggressive pace of monetary tightening will cause the economy to slip into recession starting in the second quarter of 2023.”

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