What to Look Out For in US Q4 GDP?

The US looks to record another period of accelerating growth amid sliding economic indicators and worries the economy will have a hard landing as inflation comes under control.

US Economy Surprisingly Resilient

Last year, the US economy technically met the criteria for one definition of a recession but managed to avoid it with high job creation and inflation. Since then, the unemployment rate has remained steady near 40-year lows. But inflation has come down substantially as the Fed raised rates and energy costs came down. While this might help economic performance in the year's final quarter, it leaves several concerns for the coming quarters open.

The main driver for the better performance in the third quarter was a drop in imports, as consumer demand was impacted. This leads to worries that the last quarter could again show expansion, but on a similar technicality. A recent study of the leading indicators showed that all the components of the economy have been underperforming - except for personal spending and unemployment. The latter is still distorted by the effects of covid, as the labour force participation rate has not recovered.

The Strength of the American Consumer

Americans were able to save up during the pandemic, but the recent rise in inflation has led to a dramatic drop in savings rates and a rise in indebtedness as consumers struggle with higher prices. It's increasingly hard for consumers to keep up demand as they have to deal with higher interest rates as the Fed tries to reduce spending to get inflation down. But not by too much. Otherwise, it could cause a recession. With that in mind, there could be more attention on the components of the GDP figure.

The Fed's GDP predicting tool expects Q4 GDP to come in at 3.5%, above the 3.2% revised figure from Q3. The market's consensus is less optimistic and forecasts the economy to decelerate to 2.6% in the final quarter of the month. The market will have to process the results in the blackout period of Fed speakers ahead of the FOMC meeting next week.

EUR/USD Eyes $1.10?

EUR/USD has remained upward with no major pullbacks since the flag pattern completed at $1.05. $1.10 is the next significant level of defence as a round number, and the measured moved, with its break providing an opportunity at $1.1183. On the flip side, losing $1.075 could expose the flag bottom.

Key Takeaways

The US economy is surprisingly resilient, but the main driver for the better performance was a drop in imports, as consumer demand was impacted. Inflation has risen, leading to decreased savings rates and increased indebtedness for consumers, while the Fed tries to reduce spending to get inflation down and avoid a recession. With that in mind, there could be more attention on the components of the GDP figure. The Fed's GDP predicting tool expects Q4 GDP to be 3.5%, while the market consensus is 2.6%.