October 29 was a “data rich” day with the Bureau of Economic Analysis releasing data on personal income and outlays for September as well as its first release for the National Income and Product Accounts (NIPA) for the third quarter. The importance of the personal income and outlays data is that it includes the personal consumption expenditure (PCE) price index. On a month-over-month basis, this measure of inflation rose from an unacceptably high 3.95% (August) to 6.05% (September). To be sure, there is considerable variation in this measure and the year-over-year measure rose more modestly, from 3.44% (August) to 3.65% (September). The Gomme-Rupert measure of trend PCE inflation also increased from 3.84% to 3.91%.
The Fed’s preferred measure of inflation is based on core PCE (excluding food and energy). The monthly rate rose from 3.19% to 3.86%; the annual rate from 3.03% to 3.12%; and the Gomme-Rupert trend from 2.37% to 3.11%.
Meanwhile, output growth rose from 2.22% (second quarter) to 3.37% (third quarter). While consumption growth was unchanged at 3.77%, investment growth rose from 4.65% to 19.42%. Within investment, nonresidential equipment grew 20.88% in the third quarter, up from 13.44% in the second. Nonresidential structures grew 5.39%; this category has actually exhibited negative growth over the past year or so. Investment in residential structures was -3.34% (previously 2.81%) and has also experienced negative growth over the preceding year. Export growth was -5.74%, down from 5.04% in the second quarter; and imports grew 12.58% (down from 19.67%). Some readers may recall that on August 22, the U.S. imposed 50% tariffs on a variety of goods from Canada, and that on September 8 Canada levied countertariffs of 15, 25 and 50% on a number of U.S. goods. It seems unlikely that the third quarter exports and imports numbers were significantly impacted by these tariff increases since they were unexpected and came late in the third quarter.
So, would the Fed have made a different decision had they met after having these data? Overall, the economy is killing it, with GDP growth well over the long run average of about 2%. Indeed, there have been six times in the past couple of years that GDP growth has been over 3%, once over 4%. Inflation continues to run well above the Fed’s 2% target. Well, it took just a day to accumulate more info:
Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal. The Committee will deliver price stability. (FOMC Statement)
