NEW YORK — The U.S. economy grew at a 3.4% annualized pace in the third quarter, beating forecasts, while September inflation rose to 3.6% a year, according to figures released Thursday by the Bureau of Economic Analysis (BEA) and discussed in a Charles Schwab market update.
The first estimate of third-quarter gross domestic product topped the 3.2% analysts expected and was up from 2.2% in the second quarter. Schwab's Cooper Howard said growth was driven mostly by personal consumption. The BEA said increases in investment, consumer spending and government spending contributed, partly offset by lower exports.
Growth beats forecasts, but with a caveat
Schwab noted that, after adjusting for inflation, consumer spending was essentially flat in September. That suggests higher prices absorbed much of the nominal rise in spending. The GDP figure is a first estimate and is typically revised in later releases.
Inflation remains elevated
The personal consumption expenditures (PCE) price index, a measure the Federal Reserve closely watches, rose 3.6% in September from a year earlier, up from 3.4% in August. Core PCE, which strips out food and energy, rose 3.1%, up from 3.0%. Both matched expectations.
On a monthly basis, headline PCE rose 0.5% and core PCE rose 0.3%.
Cooper Howard of the Schwab Center for Financial Research described the inflation picture this way:
“This is still elevated and too high for the Fed's liking.”
Fed holds rates a day earlier
The data arrived one day after the Federal Reserve voted 10-2 on October 28 to hold interest rates steady. According to Schwab, Fed Chair Kevin Warsh declined to signal what the central bank will do next. Howard said a December move is “very much in play,” and that strong growth and high inflation point to the Fed needing to tighten further.
Tech earnings pull markets in different directions
Corporate results added to the mixed mood. Alphabet reported earnings of $2.12 a share against the $3.01 analysts expected, according to Schwab, and its shares fell about 11% in early trading. Google Cloud revenue reached $30.7 billion, up 103%.
Microsoft, by contrast, beat expectations, with its Azure cloud business growing 49%, Schwab reported.
At the open, the S&P 500 stood at about 7,744 and the Dow Jones Industrial Average at about 52,475, Schwab said. The 10-year Treasury yield was 5.01%, and West Texas Intermediate crude traded near $101 a barrel.
What to watch next
With growth firm and inflation still well above comfort levels, investors will be watching incoming data and Fed communications ahead of the December meeting. This article is market reporting, not investment advice.
