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Growth and Inflation Update - Not Much to worry about for now!

GDP Growth

In the third quarter of 2023, the U.S. economy demonstrated robust growth, with an annualized rate of 4.9%, marking a significant acceleration compared to the previous quarter. Several positive factors, including increased consumption, growth in private inventories, expansion in single-family homebuilding, and higher government spending, contributed to this strong performance. However, there were also some negative aspects, such as a decline in private non-residential investment and a modestly widening trade deficit, which tempered the overall gains. While the ongoing resilience of the U.S. economy is encouraging, sustaining this level of strength will be challenging. In the upcoming months, factors like a weaker consumer, tighter financial conditions, and reduced business spending are expected to exert downward pressure on growth.

Real GDP Growth % from Preceding Qrt
Real GDP Growth %

Core CPI

The annual core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, fell to 4.1% in September 2023, the lowest since September 2021, down from 4.3% in the prior month matching market forecasts. This is still above the Feds target rate at 2% but has been consistently falling since rate hikes occurred last year. Concerns now surround Geopolitical risks and increasing government debt that could possibly increase the risk of higher inflation.

Core CPI Graph
Core CPI

Yield Curve & Fed Funds

The 10Y v 2Y has been inverted since July 2022. When the Yield curve has inverted this much it has been an indicator for prior recessionary periods. It has had bouts of trying to correct however it has remained inverted now for 480+ days which is one of the longest periods on record. The longer that this inversion remains the steeper costs on corporations persists. With short term rates so high, companies could become increasingly reluctant to borrow, as it becomes more and more challenging to realise a payoff when investing the borrowed capital in new equipment, facilities or added employees. A focus on strong balance sheets and operating margin will remain the key focus of organisations as they continue to transition through this period.


Fed Funds VS 10Y/2Y
Fed Funds VS 10Y/2Y

Money Supply

US M3 money supply has been exponentially increased since the covid pandemic . The US has been on a liquidity drive to strengthen the economy as can be seen from the massive jump in M3 in 2020. The fed pulled out all the stops and the federal government began mailing big checks to tens of millions of displaced workers and struggling businesses. This build up of excess savings along with supply constraints across food, energy and shelter drove inflation to near record levels. Consequently, the Fed started to hike rates in march 2022 and M3 has started and continued to decline since then ensuring some level of disinflation. There is still plenty of excess liquidity that is above the main trendline of M3 growth. This excess allowing US consumer spending to remain resiliant during a testing economic backdrop. It will be necessary to monitor the consumer as this liquidity continues to dry up.

M3 Supply
M3 Supply

Stock Market Volatility

Volatility in recent months has been increasing. As the market starts to deal with uncertainty around risks from geopolitical events, Money markets, Correction Territory of Major Indices and poor performance through the earnings season.

S&P500 VIX
S&P500 VIX

VIX over the past year overall has been rangebound near the 13 mark, which is well below the average trend line post covid. However there have been some major events causing some short term spikes (e.g. SVB Collapse in March 23). Other similar type of uncertainty in the market will produce similar results.

S&P500 VIX Post Covid
S&P500 VIX Post Covid

Reflecting the US economy has remained resiliant over the past year despite rate hikes, sticky inflation and tighter credit liquidity. The focus of the narrative shifts to the Fed and if they can accomplish the a gentle descent, or if a hard landing will result in a recession. Leading economic indicators, surveys and cyclical commodity prices will be telling signs of how well the US economy is holding up.



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