In The Know – September 27, 2024

We help you to stay in the know about the financial issues of the day. We help keep you abreast of what’s happening in the economy and the markets, and we help you understand how that impacts your own personal financial issues. Several takeaways that I have from this week that is ending September the 27th of 2024, that’s today, we got a final look at second quarter GDP. So we are about to enter the fourth quarter. We get numbers for GDP. GDP measures the growth of the U.S. economy, and those numbers come out. They get revised, and then they get revised or confirmed a third time. So this was the third look at second quarter GDP. The initial report predicted that the growth of the U.S. economy was 2.8 percent for the second quarter of 2024. It got revised up to three percent in August, and it was expected by our economists to remain at three percent for the final look. And it did. The Fed released their interest rate decision last week, along with a new summary of economic projections that they give to us every three months, and their new summary of economic projections shows no prediction of a recession for the U.S. in the short term or the long term, because a recession is defined as two consecutive quarters of negative GDP growth. So the new SEP does confirm a slowing of the economy. The Fed expects growth to remain at a solid two percent pace into 2026. So the bottom line is that if GDP is growing at three percent now, and the pace of growth is expected to be two percent by year-end, that means the economy is slowing. We also got a kind of deluge of information. We got the Fed’s preferred measure of inflation, that is PCE. Economists surveyed by Dow Jones had been expecting all items PCE to rise 0.1 percent for the month and at a 2.3 percent annualized rate. The headline number came in a little bit better than expected at 0.1 percent month over month. The metric should continue to show that inflation is moderating since we will have several 0.4s and 0.3s month over month that will be replaced potentially with something lower. So, if you just annualize the last three months you get 1.6 percent on inflation. Now that assumes that we will not see inflation rise again due to excessive government spending, the Fed printing more money, and several things that could derail this potential long-term disinflation trend, like the longshoremen’s strike that could potentially happen just next week that would put a bit of a kink in our supply chain. Core PCE was expected to stay the same at a 0.2 percent increase month over month but it came in a little bit better. Core PCE prices, which is of course the Fed’s preferred gauge to measure underlying inflation and this number does strip food and energy, rose by 0.12% from the previous month in August of 2024 below expectations of a 0.2 percent increase. So the numbers seem to support the Fed’s view that inflation is moderating and support their case for the aggressive rate cut cycle that they did begin just last week. Now the annualized core PCE number was expected to tick up 0.1% due to the falling off of a 0.1 percent last August to be replaced by 0.2, it did tick up to 2.7 percent from 2.6 percent the previous month. The Fed on Wednesday in their SEP said that they expected inflation to be 2.3 by year-end. We also got personal income and spending numbers this month. Personal income increased 0.2 percent for the month, worse than the 0.4 percent expected, while spending rose 0.2% that’s lower than the 0.3 percent expected. Pending home sales in August rose 0.6 percent month over month, about in line with the estimate of up 1% versus last year. Contract signings of existing home sales were lower by 4.3 percent. The average thirty-year mortgage rate is down to 6.2 percent, that’s down from 6.5 percent in August and 6.88 percent in July, and close to 8% a couple of summers ago. So consumers haven’t rushed the housing market yet in spite of these plummeting market rates probably because consumers either don’t know it yet or they are just waiting for them to fall further. The holidays are coming, which tends to bring a slowdown in the housing market until the beginning of the year, but if home demand doesn’t pick up after the holidays, then it would be a sign that affordability challenges cannot be solved by a one-to-one and a half percent drop-in mortgage rates after they had almost tripled since 2021. The median home price is also up 50% over the last four years. The markets so far this week are set to be up modestly. The S&P is expected well so far this week is up 0.6%, the Dow’s up half a percent, the Nasdaq’s up 1.2 percent. I do believe that the premarkets are in pretty positive territory after the numbers this morning, well moderately positive. So, all three stock indices are expected to close moderately up this week. Next week we’ve got jobs, we’ve got a JOLTS report, the ADP report, and the highly anticipated Non-Farm Payrolls Report on Friday that are going to reveal more about the health of the labor market that the Fed has become increasingly concerned about. So, now that you’re in the know about the recent and upcoming financial issues of the week, we hope that you will learn more about how we can help you integrate those issues into your own stewardship. Find out more about our biblically responsible investment strategy by going to our website financialissues.org where you can learn about defunding darkness and funding the light. While you’re there, be encouraged to fund the light and give to our Year-End Campaign.