What Sticky Inflation, Q3 GDP and Mortgage Data Are Telling Us
Let's talk about economic data points, including the October PCE Price Index, and what we’re watching next.
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It wouldn’t be a week without some economic data, so as millions of folks begin their Thanksgiving journey, let’s take stock of the day’s findings and what it tells us about the economy and the potential Fed actions.
Q3 2024 GDP Sticks at 2.8%
The second estimate for Q3 GDP came in at 2.8%, matching the initial print and supporting the notion the economy was on solid ground during the quarter. Helpful? Only somewhat given we are just about to close the books on the second month in the current quarter. To us, this means the last dribs and drabs of October data and upcoming November data will give us more insight into the pace of the economy and how that may factor into the Fed’s next policy decision.
That said, October durable orders rose 0.2%, up from September’s 0.4% decline. Excluding transportation, new orders increased 0.1%, and excluding defense, new orders increased 0.4% in October. Nondefense new orders for capital goods in October increased $1.2 billion or 1.4%.
Weekly MBA Mortgage Purchase Index Turns Up
The latest MBA weekly mortgage applications index for the week showed the sharpest increase in mortgage application volume over the last two months. Applications for a mortgage to purchase a new home soared by 12% week over week, while applications for a loan to refinance a mortgage fell 3% in the period.
While this uptick in the MBA purchase index jives with findings from Redfin that folks were waiting until after the 2024 election to move or purchase a home, we’ll want more data to see if this is indeed what’s happened as folks take advantage of lower mortgage rates or, as we can see in the chart above, it’s just a one-off pop in the data.
Should we see the upturn in the purchase index continue in the coming weeks and months, it would be very supportive for shares of TheStreet Pro Portfolio holdings Builders FirstSource BLDR, United Rentals URI, Vulcan Materials VMC and Waste Management WM.
October PCE Price Index Says Inflation Is... You Guessed It
Let's turn to this morning’s October PCE Price Index. The PCE Price Index is a figure we watch closely in part because it is the Fed’s preferred gauge of inflation.
Following Fed Chair Powell’s latest comments that were a tad more sobering on the potential cadence of Fed rate cuts than the market was expecting, the data showed the core PCE price index rose to 2.8% YoY in October from 2.75 in September, matching expectations. However, the headline PCE price came in hotter than expected at 2.3% YoY, unchanged compared to September and not falling to 2.1% as the market expected.
We see that stickiness in the table above, but when we examine the last few months of data for both the headline PCE Price Index and the core data, it tells us sticky inflation is likely to be a hot topic at the Fed’s December policy meeting.
As we think about what those charts depict, we have to remember the October data is somewhat backward looking now, especially following last week’s Flash November PMI that suggested inflation was back on track in terms of the Fed’s 2% inflation target. This means next week’s November PMI and jobs data will be something we watch closely as we get ready for the November CPI and PPI prints as well as the Fed’s upcoming policy decision.
At the time of publication, TheStreet Pro Portfolio was long BLDR, URI, VMC and WM.
