The latest data shows that the US economy is expected to continue to grow steadily by the end of 2024. The preliminary composite PMI for September was 54.4, slightly lower than August's 54.6, indicating continued growth in both the service and manufacturing sectors. Models from Goldman Sachs and the Atlanta Fed predict annualized GDP growth rates of 3.1% and 3.4% for the third quarter. Despite the rise in unemployment rate, the market still strongly expects a rate cut by the Federal Reserve in November, with traders estimating a 95% probability of a 25 basis point cut
The latest data released on Thursday shows that the U.S. economy is expected to continue growing at a steady pace until the end of 2024.
The preliminary reading of the S&P Global U.S. Composite PMI, which measures activity in the services and manufacturing sectors, was 54.4 in September, down from 54.6 in August. The market expects this index to fall to 54.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the data shows the U.S. economy is still growing steadily as it enters the fourth quarter.
In a press release, Williamson said, "In October, U.S. business activity continued to grow at an encouraging pace, extending the economic recovery seen so far this year into the fourth quarter. The October PMI reading is consistent with GDP growing at an annualized rate of 2.5%."
Williamson added that sales were stimulated by "competitive pricing," leading to a decline in the inflation rate of goods and services sales prices to the lowest level since May 2020, aligning with the Federal Reserve's 2% target.
This optimistic outlook aligns with current market participants' strong forecasts for U.S. third-quarter GDP data. Following the strong job report in September and better-than-expected retail sales data, Goldman Sachs' economic team currently forecasts the U.S. economy to grow at an annualized rate of 3.1% in the third quarter.
Meanwhile, the Atlanta Fed's GDPNow model forecasts the U.S. economy to grow at an annualized rate of 3.4% in the third quarter.
Higher-than-expected growth forecasts have helped alleviate concerns of a recession that emerged in early August. At that time, the unexpected rise in the unemployment rate to 4.3% triggered the "Sam Rule."
Matthew Martin, Senior U.S. Economist at Oxford Economics, wrote in a report to clients on Thursday, "Our recession probability model showed significant improvement in September, reversing much of the recent upward trend. In this context, our confidence in GDP growth forecasts for 2025 above market consensus has strengthened."
Overall, the economic growth data of the past month has not affected the market's assessment of the Fed's actions in November. According to the CME Group's FedWatch tool, traders currently expect a 95% probability that the Fed will cut rates by 25 basis points at its next meeting.
However, the market has begun to anticipate a reduction in the number of Fed rate cuts over the next year, which aligns with the rise in the 10-year U.S. Treasury yield, which has increased by about 50 basis points in the past month, currently hovering around 4.2%. In some cases, the rise in Treasury yields may act as resistance to the stock market. However, stock strategists believe that if the rise in Treasury yields is accompanied by strong economic growth, it could be a bullish signal for the stock market. BlackRock's Chief Investment and Portfolio Strategist in the United States, Gargi Chaudhuri, stated, "The gradual rise in U.S. bond yields... for legitimate reasons, namely expectations of higher growth, historically tends to benefit companies with profit growth. Therefore, maintaining a high-quality investment portfolio core remains very important."