TSX gains after CPI shows US inflation rose 3%
The third-quarter GDP report, scheduled for release on Oct. 30, will almost certainly be delayed due to the ongoing government shutdown. Meanwhile, the latest nowcasts still point to a moderate pace of economic activity, based on the median estimate for a set of nowcasts compiled by CapitalSpectator.com. But with each day that key government economic reports are postponed, the reliability of Q3 GDP nowcasting becomes more uncertain.
The available numbers indicate an estimated 2.3% growth rate for Q3. The median nowcast marks a sharp slowdown from the 3.8% reported for Q2.
One of the inputs, however, reflects a strong 3.9% increase. If the Atlanta Fed’s GDPNow estimate (as of Oct. 17) is correct, Q3 growth will tick up slightly from Q2’s torrid pace.
The Federal Reserve, however, appears to be setting monetary policy on the view that the labor market is slowing and lower interest rates are needed. Fed funds futures continue to price in high odds that the central bank will reduce its target rate again at the Oct. 29 policy meeting.
The 10-year Treasury yield is also pricing in dovish policy expectations. The benchmark rate fell for a third day on Wednesday, dropping to 3.95%, close to the lowest level of the year.
Goldman Sachs economists on Monday identified five key drivers behind the sharp decline in job creation, notes Reuters: waning immigration flows, cutbacks in government hiring and spending, rising adoption of artificial intelligence, mounting tariff-related expenses and trade instability, and broader macroeconomic headwinds.
It’s reasonable to assume that the downshift in the labor market will take a toll on GDP growth. But until the government reopens and starts publishing new data, questions about how economic conditions are evolving remains a guessing game.