Introduces Aditya Bhave, senior US economist at Bank of America Securities, to discuss the GDP data.
Host
Aditya Bhave
This is a very impressive GDP report with 8% nominal GDP growth and consumer spending beating expectations. Revisions were huge and aggressive. The economy rarely grows below 2% when not in recession, yet Fed says 1.8% is trend growth - looks like we'll get another 2-handle this year.
4.3% GDP growth in what's been the worst quarter for employment growth since 2019 suggests productivity growth is off the charts.
Host
Aditya Bhave
Productivity is disinflationary but stronger productivity growth also means your neutral rate is higher - it goes both ways.
Equities are moving to their own tune, already had significant move to upside. Growth factor is the only saving grace for deficits.
Rick
Investment numbers are good but not great. Where would you look for AI investment in GDP accounts?
Host
Aditya Bhave
Three places to look: data centers in structures, information processing equipment in equipment, and software in intellectual property. These added 1 percentage point to GDP growth in first half - not sustainable, related to front-running ahead of tariffs. AI boom hasn't ended, investment levels normalized and should resume strong growth.
Structures down 6.3%, equipment up 5.4%, intellectual property up 5% - those are three areas where AI boom shows up but should show up more.
Host
Aditya Bhave
It should continue. Third quarter is pretty old news now.
What do you think the Fed is thinking now seeing this number?
Host
Operative phrase for Fed policy is 'well positioned' - meaning cool, hanging, waiting, pausing in January to see data. Market pricing shows 16% probability for January cut, 44% for March, about 60% for April.
Host
Aditya Bhave
Fed will say we don't have a GDP mandate. It will come down to unemployment rate - if you print 4.7% or higher in December, they'll go again in January. If 5% or lower, they won't go.
Inflation is in goods - goods were negative, now running about 1.4% year-over-year but not passing into services. Outlook for Fed policy is one where it will pause.
Host
Aditya Bhave
Our card data for holiday season shows decent but not spectacular spending. Coming off unfavorable base effect from last year's surge. Probably get 1-handle or soft 2-handle consumer spending for fourth quarter.