Week in Review: October 29, 2021

Third quarter GDP growth slowed to 2.0%, affected by surging Delta variant coronavirus cases, and ongoing supply chain issues. Consumer spending slowed from 12% in 2Q21, to just 1.6% in 3Q21. Spending on services rose 7.3%, while spending of goods fell 9.2%, led by a 26% decline in durables. Ongoing supply chain issues weighed heavily on motor vehicles and parts, which reduced GDP growth by 2.4%. As supply chains begin to normalize, continued strong demand for autos and other goods should benefit GDP growth moving into 2022.

Consumer confidence rose modestly in September, benefitting from consumers’ improved views on both current and future conditions. In a positive sign, the proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October, which bodes well for 4Q21 GDP growth.

The Fed’s preferred measure of inflation, core personal consumption expenditures (PCE), rose 0.2% in September, down from the 0.3% pace recorded in August. Compared to a year ago, core PCE rose 3.6%, unchanged from August and tied for the fastest pace since 1991.

Personal incomes declined 1.0% in September, reflecting in part the expiration of enhanced unemployment benefits.  Nonetheless, spending was strong at 0.6% as consumers dipped into savings, reducing the savings rate from 9.2% to 7.5%.

Durable goods orders fell 0.4% in September, dragged down by volatile transportation sector orders.  Core business spending, however, rose 0.8%.