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Final Q3 GDP was +4.4%Consumer spending (PCE):+2.4%GDP final sales (excluding inventories) +1.2% vs +2.6% expectedGDP price index (GDP deflator): vs +2.9% expectedCore PCE (excluding food & energy): +2.7% vs +2.6% expectedBusiness investment (nonresidential fixed investment): 2025 annual GDP at about 2.23%Contributions to GDP in percentage points:Government -0.9 vs +0.38 priorNet exports +0.08 vs +1.62 priorInventories +0.21 vs -0.12 priorFixed investment +0.45 vs +0.15 priorServices +1.59 vs +1.7 priorGoods -0.01 vs +0.64 priorUSD/JPY was trading at 155.17 just before the release and 2-year yields were trading at 3.46%. The Fed funds futures market was pricing in 58 bps in easing through year end.From the release:The BEA estimates that this reduction in services provided by the federal government subtracted
about 1.0 percentage point from real GDP growth in the fourth quarterOf course, economists knew there was a shutdown so that was at least somewhat factored in.Note the inflation numbers here but also note the December PCE report was released at the same time so we two readings on inflation.Trump was out just before this release saying that the government shutdown cost ‘at least’ 2 points in GDP. That was a hint he’d seen the number beforehand and that it wasn’t what he wanted. Yesterday, the Atlanta Fed GDPNow tracker fell to 3.0% after starting the week at 3.7%. The biggest part of the downgrade was yesterday’s trade balance number and I would suspect that most economists didn’t have that in their model. So in light of that and Trump’s comments, I see risks to the downside. Moreover, four major economic forecast firms — Morgan Stanley, Goldman Sachs, Wells Fargo and Barclays — all have had in the 1.5-1.7% range so maybe this wasn’t such a big surprise.
This article was written by Adam Button at investinglive.com.
💡 DMK Insight
The final Q3 GDP growth of 4.4% is a double-edged sword for traders right now. While consumer spending is up 2.4%, the lower-than-expected GDP final sales growth of 1.2% suggests underlying weakness. This could lead to volatility in equities and the dollar as traders reassess the Fed’s interest rate trajectory. With core PCE at 2.7%, slightly above expectations, inflationary pressures remain a concern, potentially keeping the Fed hawkish. Watch for reactions in sectors sensitive to interest rates, like tech and real estate, as they could face headwinds if the Fed maintains a tighter policy stance. Additionally, the negative contribution from government spending (-0.9) could signal fiscal challenges ahead, impacting market sentiment. Here’s the thing: while the headline growth looks strong, the details reveal cracks that could lead to a market pullback. Keep an eye on the S&P 500; a break below recent support levels could trigger further selling pressure. Traders should monitor upcoming economic indicators closely, particularly any shifts in consumer sentiment or business investment trends, as these will be crucial in shaping market direction in the coming weeks.
📮 Takeaway
Watch the S&P 500 for potential support breaks; a decline could signal broader market weakness as underlying economic indicators reveal cracks.
