Reports: Solid Growth, Persistent Inflation

Recent economic reports further undermine the politically-motivated argument from earlier this year that the US was already in a recession. They also undercut the Fed’s hopes that inflation will soon subside.

On the job front, nonfarm payrolls rose 263,000 in September while the unemployment rate fell back to 3.5%, tying the lowest level since 1969. Payrolls are up at an average monthly pace of 420,000 so far this year – that isn’t a recession. And data show the share of voluntary job leavers (often called “quitters”) among the unemployed reached 15.9%, the highest since 1990. People don’t quit their jobs unless they have optimism about their job and earning prospects.

Meanwhile, the ISM Services index came in at a robust 56.7 for September. Yes, the ISM Manufacturing index declined to 50.9, but that’s still in expansion territory (north of 50) and the services portion of the economy is much larger than manufacturing. Auto sales remained softer than normal in September, but, at a 13.5 million annual rate, were the fastest since April.

Put it all together, and we are tracking a 3.0% real GDP growth rate in the third quarter. The Atlanta Fed’s GDPNow model is tracking 2.9%, almost exactly the same. Net exports look very good in Q3 and should account for most of the growth. Again, no recession, yet.

At the same time, inflation remains stubbornly high. The consensus forecast for this Thursday’s report on the Consumer Price Index (CPI) is that it grew by a relatively mild 0.2% in September. We would not be surprised by an increase of 0.2% but think the increase is more likely to be 0.3%.