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Q3 GDP Increased More Than Expected

Pre-market futures are revving higher this morning, following marginal gains across the board yesterday after starting the day in the red. We’re closing out Q3 earnings season and paying attention to consumer appetite reports, with more to come throughout this week. Currently, the Dow is +125 points, the S&P 500 is +22 and the tech-heady Nasdaq +100 points. The small-cap Russell 2000 is up a solid +20 points.

The first revision to Q3 Gross Domestic Product (GDP) was rather Goldilocks: a lift of 30 basis points (bps) from the initial print to +5.2% is the strongest quarterly GDP figure we’ve seen since Q4 2021. This would normally be a warning sign to the Fed that current interest rate levels aren’t keeping inflation in check, but when we look under the hood on this data, it gets much more satisfying.

The Consumption number came in at +3.6%, notably off the +4.0% expected and reported, meaning pure spending is not directly responsible for the recent rise in GDP. The Price Component was also +3.6% (10 bps higher than the previous print), while the core Price Component drops to +2.3% — pointing to food and fuel prices taking up 130 bps of this already lower figure. We don’t equate a core price component number with overall inflation, but any time we see a metric come within range of the Fed’s optimum +2% inflation rate, it’s nice to see.

Advance Trade Balance of Goods sank in October to the deepest deficit since July, -$89.8 billion. This comes off the -$86.8 billion the previous month, but well off the -$97.5 billion cycle lows we saw back in April of this year. All-time lows are not too far into the past: south of -$120 billion back in the first part of 2022. Although we’re headed back down over the past couple months, the trajectory is not as steep as we’d seen earlier in this cycle.

Wholesale Inventories were down again: -0.2%, making it eight of the past 10 months with a negative print. Retail Inventories were unchanged month over month, 0.0% — the lightest read since the -0.2% we saw back in November of last year. The takeaway of all this appears to be better growth with a lower core: more productivity in the economy, and less inflation. We don’t expect any of this to trigger a re-think among Fed members, although we will hear from Richmond Fed President Tom Barkin and Cleveland President Loretta Mester today after the opening bell.

General Motors (GM) shares are up a strong +9% at this pre-market hour, as the company announced some new bold steps clearly meant to infuse its stock price: $10 billion in accelerated stock repurchases join $6.8 billion in immediately retired shares — 17% of the float, vanished. One third of the “Big 3” automakers also announced a +33% dividend increase. Shares are still in the red year to date, but a continued surge like the one we’ve seen so far this morning might bring the stock back into the green.

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