The most important events in global finance this week will be the two day meeting of the US Federal Reserve’s Open Markets Committee and the jobs report for October.
The Fed is widely expected to leave interest rates unchanged at its monetary policy meeting of the year, which ends on Thursday morning, our time but economists say we can lock a rate rise in for the December meeting.
That’s after the stronger than expected first reading of third quarter GDP showed the US economy is still growing solidly, thanks in part to consumer spending.
Delaying a rate rise will give it time to peruse two more inflation and non-farm payrolls reports (with the first on Friday night, our time) as it looks for signs that inflation is approaching its 2% target.
Economists see a sharp a rebound in hiring and from September’s hurricane depressed reading (a loss of 33,000 jobs which is likely to be revised) with around 300,000 new jobs created in October. The jobless rate in September fell to 4.2% a level not seen for years.
The key figure though will be the pace of wage rises – economists reckon it will have slowed to an annual 2.7% from the 2.9% rate in September (and 0.2% growth from September).
There was a small rise in core inflation in the September quarter growth data, but it remains a long way from the Fed’s 2% target.
Core inflation as measured by the Fed’s preferred measure rose an annual 1.3% – still well under its 2% target, but up sharply from the 0.9% annual rate in the second quarter, and total investment spending slowed to an annual 0.1% growth rate from, 7.4% in the second and 2.3% in the first quarter.
Consumer spending, the main growth engine for the economy, rose at a 2.4% annual rate down from the 3.3% gain in the second quarter. A report on Friday showed US consumer confidence is now at a 13 year high, which is another big plus for the economy.
Non-residential, or business, investment rose 3.9%. Inventories added 0.73 percentage points to growth and the trade sector added 0.41 percentage points.
And while business spending on equipment jumped at an 8.6% annual rate in the third quarter on top of an 8.8% increase in the second quarter (and added almost a half a percentage point to third-quarter GDP), American businesses cut investment in new structures, such as factories and oil wells.
Investment in housing declined again for the second quarter in a row – both worrying negatives, along with that big jump in inventories which could indicate businesses are too optimistic about sales growth.
And government investment in infrastructure, such as highways, schools, hospitals, prisons and spending on weapons fell to the levels last seen in 2001 (not to be confused with spending on repairs after the big hurricanes in Texas, Florida but not Puerto Rico which is not a US state).
Excluding those volatile categories, final sales for domestic product rose 2.3% in the third quarter, down from a 2.9% rate in the prior period, matching the pace of the slowdown in consumer spending and the bump up in inventories.
