NAFCU: Strong Growth Should Calm Recession Fears

The third quarter’s strong growth in economic output means a recession is unlikely anytime soon, but won’t push the Fed to hike rates, a NAFCU economist said Thursday.

The U.S. Bureau of Economic Analysis reported that real gross domestic product (GDP) rose at an annual rate of 4.9% from the second quarter to the third quarter, following a 2.1% increase in the second quarter.

“GDP soared in the third quarter, putting to bed any immediate fears of recession,” NAFCU Chief Economist Curt Long said.

Long said the report’s details were strong, “although much of the growth was concentrated in business inventories, which is unlikely to continue growing at such a strong pace.”

He said the Fed is unlikely to raise rates further “unless inflation picks up, but strong economic returns will support a higher-for-longer posture.

The Fed’s next two-day meeting ends Nov. 1.

Mike Fratantoni, chief economist for the Mortgage Bankers Association, said the Fed is likely to be pleased by the report’s showing of a softening in Personal Consumption Expenditure (PCE) inflation, a measure the Fed follows closely.

The BEA reported the annual gain in core PCE fell to 2.4% in the third quarter from a 3.7% gain in the second quarter.

“This might be the best news in this report, as it shows progress towards the Fed’s 2% goal, despite the robust GDP growth in the third quarter,” Fratantoni said.

The MBA’s Oct. 15 forecast expected a 4.8% increase in GDP, which it had raised from 2.7% in its Sept. 18 forecast.

The MBA’s Fratantoni said the strong 4.9% pace is more than twice the growth rate that is likely to be sustained over time.

Fratantoni said the third quarter growth was powered by the spurt in inventories that is likely to be reversed in the fourth quarter, and the continuing strength of consumer spending.

“Some of the strength is due to a big increase in spending on durable goods as well as a pickup in estimated spending on housing and utilities,” he said.

“As excess savings built up during the pandemic continue to drop and wage gains decelerate, it is difficult to see how this pace of consumer spending growth can be maintained,” he said. “We are now seeing some consumer stress in the rising delinquency rates for credit cards and auto loans.”

BEA will update its third-quarter estimate on Nov. 29, and provide its first estimate of fourth-quarter GDP Jan. 25, 2024.

Thursday also brought rays of sunshine for residential housing and car sales, which together accounted for three-quarters of credit unions’ balance sheets in June.

Cox Automotive said new cars sold at a seasonally adjusted annual rate of 15.8 million in October, up 1.1 million from the 14.7 million pace a year earlier and up slightly from September’s 15.7 million SAAR. “The sales strength continues to be remarkable, given the current economic climate and the fact that average new-vehicle auto loans are flirting with 10%,” its news release said.

The National Association of Realtors (NAR) reported pending home sales were 1.1% in September than in August — not much of a gain, but not another drop in the index, which is now down 11% from a year earlier.

“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” NAR Chief Economist Lawrence Yun said. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”

NAR also predicted:

• Existing-home sales will fall 17.5% this year, settling at 4.15 million, before rising 13.5% to 4.71 million in 2024.
• Newly constructed home sales will grow 4.5% to 670,000 this year, boosted by additional inventory, and rise 19.4% to 800,000 in 2024.
• The national median new home price will drop by 5.9% this year to $430,800, and improve by 3.5% next year to $445,800.