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29th oct

Image source: Vladvm, Ruth Black, JFunk, Dean Drobot - Shutterstock

What's going on?

Official third-quarter data out of the US on Friday showed its economy grew 3.5% larger than the same time last year – more than economists predicted.

What does this mean?

Consumers spent 4% more last quarter than they did a year ago; estimates had been closer to 3%. Since personal consumption makes up about 70% of the economy, bumper growth here helped offset declining business investment in the same period. People probably felt more confident spending since unemployment was low (which normally leads to higher wages) and taxes were too. But they also saved less money compared to the previous quarter of the year – perhaps surprising, since it pays more to save these days.

Although they weren’t investing as much, businesses weren’t sitting idle last quarter: they focused on restocking inventory, which helped the economy – and contributed to them feeling upbeat.

Why should I care?

For markets: Things could’ve been better, but they could’ve been worse.

Markets in the US continued to fall on Friday, but there was a glimmer of hope for investors: inflation data. The pace at which prices of goods and services rose last quarter was 1.6% – less than predicted. That suggests current interest rates are having the desired effect of cooling prices without slowing down the economy too much. Rising rates can make investing in stocks less attractive than buying new government bonds, since the latter offer higher returns than before. If rates increase less rapidly in the future, it might be good news for stocks.

The bigger picture: Beware the next quarter.

Next quarter might be crucial for parts of the US economy. The week just gone is usually one of the biggest for exports of soybeans to China from the US – but there were none whatsoever this year (tweet this), with trade war tariffs likely to blame. US farmers will be hoping Chinese buyers place new orders soon – or that orders from elsewhere ramp up quickly.

Originally posted as part of the Finimize daily email.

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