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October 29, 2023
A STRONG ECONOMY: The U.S. economy, as measured by gross domestic product (GDP), grew at an annualized rate of 4.9% in the third quarter of 2023. This follows growth at a 2.1% rate in the prior quarter. Many economists had predicted a recession by now. Consumer spending was strong. But growth also occurred in private inventory investment, exports, and government spending.
THE FED’S FAVORITE INFLATON GAUGE DECREASED A BIT: The Fed’s most watched inflation gauge is the core personal consumption expenditures (PCE) index. At the Fed’s July meeting, they predicted this index would be at 3.8% year over year gain by the end of December. In September, the core PCE index rose 0.3%, and the 12-month increase fell to 3.7%. This is a strong indicator that we may not get another interest rate increase from that body.
INVESTORS CONTINUE TO SELL: Activity in the bond markets have continued to push bond values down, and yields up, although that trend reversed this week, The lower bond values have influenced interest rates higher, which worries stock investors. In addition, earnings reports did not help. Google’s parent Alphabet, Inc. released its report which disappointed investors and the stock plummeted by about 10%. Meta dd the same and experienced a 3.9% loss for the week. Chevron announced earnings that were sharply lower than a year earlier, and the stock declined by about 13%. The positive economic news was not enough to counteract these factors, and the overall stock markets moved down.
LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.
U.S. SAVINGS RATE: A sign that the U.S. consumer, who helped power a strong third quarter, may be running out of steam, is that the savings rate dropped to 3.8%. If this keeps getting lower, spending will ultimately have to slow down. Defaults on car loans are up, another sign that consumer spending may start slowing.
SHELTER INFLATION HIGH BUT MODERATING: In September, the cost of shelter was up 7.1% from a year earlier. In August, that number was 7.2%. The peak was 8.2% in March 2023.
WAGE-FLATION: The United Auto Workers union and Ford Motor came to an agreement that will conclude a six-week strike. This agreement features a 25% wage hike throughout the agreement’s duration. The maximum wage will exceed $40 an hour, with entry-level salaries getting a 68% rise to surpass $28 an hour. The agreement reintroduces cost-of-living adjustments.
HOME AGAIN: By the time this email hits your inbox, I will have been back in the U.S. for several hours. But what a wonderful trip to Portugal we experienced. We stayed in Tomar, Lamego, Porto, and Lisbon. It is a beautiful and interesting country, and a proud people. The food was very good, and quite reasonable. There is a lot of beauty and history to behold as well.
Have a great week!
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Stonecrop Wealth Advisors, LLC
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“The only function of economic forecasting is to make astrology look respectable.” John Kenneth Galbraith
“Keep your life free from the love of money, and be content with what you have.” Hebrews 13:5
SOURCES:
A STRONG ECONOMY: https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimatev
U.S. SAVINGS RATE: https://www.wsj.com/articles/third-quarter-growth-gdp-consumer-spending-business-investment-economy-fb6b0e26?mod=economy_trendingnow_opn_pos2
THE FED’S FAVORITE INFLATON GAUGE DECREASED A BIT: https://www.bea.gov/news/2023/personal-income-and-outlays-september-2023
SHELTER INFLATION HIGH BUT MODERATING: https://www.calculatedriskblog.com/2023/10/pce-measure-of-shelter-slows-to-72-yoy.html
WAGE-FLATION: gritcap.io
(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.
Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.