US Economy Grows Less Than Expected In Q3, Yet Private Employment Soars By 233,000 In October

The U.S. economy grew at an annualized rate of 2.8% in the third quarter, according to official advance estimates released Wednesday.

This marks a slowdown from the 3% growth recorded in the second quarter and fell short of the anticipated 3%. The Atlanta Fed's GDPNow model forecasted a 3.3% increase prior to the release.

In a separate release, the ADP National Employment report showed that private payrolls surged by 233,000 in October, sharply accelerating from 143,000 in September and well above economist expectations of 115,000, as tracked by TradingEconomics.

The ADP data — which uses anonymized payroll data of more than 25 million U.S. employees – offers encouraging insights ahead of Friday’s official jobs report, suggesting the U.S. economy likely maintained robust job growth throughout the month, despite the hurdles posed by recent hurricanes and uncertainties surrounding the U.S. elections.

US GDP Rises By 2.8% In Q3, Misses Estimates

Consumer spending increased due to rises in both goods and services.

Key contributors within goods included nondurable goods, notably prescription drugs, and motor vehicles and parts. For services, health care — primarily outpatient services — and food services and accommodations drove the growth.

The rise in exports was largely driven by capital goods (excluding automotive), while the increase in federal government spending was led by defense expenditures. Imports rose, mainly due to a surge in capital goods (excluding automotive).

The slower real GDP growth in the third quarter compared to the second was mainly due to a decline in private inventory investment and a larger drop in residential fixed investment.

These were partially offset by stronger exports, consumer spending and federal government spending. Imports also saw an uptick.

The personal consumption expenditures (PCE) price index increased 1.5%, compared with an increase of 2.5% previously. Core PCE prices advanced at 2.2% pace, decelerating from 2.8% and above expectations of 2.1%.

October’s ADP National Employment Report Positively Surprises

• In October, goods-producing industries saw an increase of 22,000 jobs, up from the 8,000 added in September.
• Manufacturing lost 19,000 positions, a sharper decline compared to the 12,000 layoffs in the prior month, while construction added 37,000 jobs.
• Service-providing industries experienced strong growth, adding 211,000 jobs, a significant jump from the 81,000 hired in September.
• Education and health services gained 53,000 positions; trade, transportation, and utilities added 51,000; and leisure and hospitality grew by 37,000.
• Annual pay growth for employees staying in their roles fell to 4.6%, extending a two-year decline, while pay gains for job switchers slowed to 6.2%.
• “Even amid hurricane recovery, job growth was strong in October. As we round out the year, hiring in the U.S. is proving to be robust and broadly resilient,” said Nela Richardson, chief economist at ADP.

Market Reactions

The dollar gained traction on Thursday morning trading, with the U.S. dollar index (DXY) – as tracked by the Invesco DB USD Index Bullish Fund ETF UUP – rising 0.3% after the economic releases.

The greenback showed a stronger reaction to employment statistics before consolidating its gains following the GDP release.

Short-dated yields surged as expectations for a December rate cut by the Federal Reserve diminished. Yields on the 2-year Treasury bond rose by 4 basis points to 4.14%.

While a 25-basis-point rate cut next week is nearly certain, implied odds for a similar move in December dropped to 70% from 75% according to CME FedWatch.

Major U.S. index futures slipped after the data release, with S&P 500 futures steady and Nasdaq 100 futures down 0.1% as of 08:55 a.m. in New York.

The SPDR S&P 500 ETF Trust SPY ended Tuesday up 0.2%, less than a percentage point below its all-time high.

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