Business

After a robust third quarter, US economic growth will likely slow. That bodes well for rate cuts next year.

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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

The Commerce Department is set to report third-quarter gross domestic product Thursday. It’s the broadest measure of economic output, and it’ll likely show that the US economy expanded at a staggeringly rapid pace from July through September, despite higher interest rates, depleted pandemic savings and high inflation.

The economy is expected to keep growing through the end of the year, though at a slower rate. Some investors say an end-of-year stock rally may be on the table, too.

The expectation that the economy won’t pick up even more strength may keep the Federal Reserve on track to cutting rates sometime in 2024, since red-hot demand outpacing supply could be maintaining some upward pressure on prices. But how early in the year the Fed begins to cut rates ultimately depends on inflation’s trajectory.

Fed Chair Jerome Powell has said the central bank needs to see “below-trend growth” to be assured that inflation is on track to slow to 2%, the Fed’s inflation target.

“The US economy continued to show remarkable resilience over the summer with surprisingly robust job growth and an unexpected consumer spending spree that likely propelled real GDP growth above 5% annualized in (the third quarter),” Gregory Daco, chief economist at EY-Parthenon, wrote in an analyst note.

“While these signs of economic strength will fuel speculations that the economy is re-accelerating, we do not expect such strong momentum will be sustained.”

The Fed cuts interest rates whenever unemployment rises sharply or if inflation consistently hovers below 2%. The central bank also doesn’t have any incentive to restrict the economy through elevated interest rates if inflation is already under control.

Daco expects rate cuts to begin by the middle of next year.

The Fed’s main strategy to defeat inflation is by slowing demand through rate increases, since higher interest rates make borrowing to purchase cars and homes more expensive, thus prompting consumers to curb their spending. The US central bank has raised interest rates 11 times since March 2022 to their highest level in 22 years.

Still, the economy seems to have powered through in the third quarter.

Consumer spending, which accounts for about 70% of economic output, advanced a healthy 0.4% in August, following a 0.7% gain in July. Retail sales, a component of the broader spending figures, grew for the sixth-straight month in September. Meanwhile, industrial production rose in September to its highest level in nearly five years.

And employers have added about 260,000 jobs a month this year, on average, totaling more than 2 million jobs added since January. A strong job market begets similarly strong spending.

But to be sure, Americans are still facing several economic obstacles. Soaring Treasury yields are expected to cool the economy, on top of tougher lending standards, the resumption of student-loan repayments, and the exhausted excess savings that many Americans had accumulated during the pandemic.

The US economy is also contending with two foreign wars, trillions in federal debt, a frozen housing market, and record-low oil inventory, right as geopolitical tensions in the Middle East threaten a spike in oil prices.

Yet even though uncertainty abounds, some economists maintain a bullish outlook on the economy’s resilience.

“The rise in bond yields and lags in credit tightening, including effect on corporate debt issued earlier in the pandemic set to reprice at much higher rates, are expected to be headwinds in 2024,” Diane Swonk, chief economist at KPMG, wrote in a post on X, formerly Twitter.

“That can have a slowdown without fully derailing the economy,” she said.

From ESG investing (BlackRock) and gay rights (Disney) to Donald Trump after the Capitol riots (mainstream corporate America), companies routinely take a stand on cultural issues.

Sometimes their stance helps their bottom line, as it did with Nike, after the company supported Colin Kaepernick’s right to kneel during the national anthem in protest against the poor treatment of Black Americans by the police. Sometimes, it does the opposite — think Bud Light’s support of transgender rights, reports my colleague Elliott Gotkine.

Most companies had avoided wading into the long-running Israeli-Palestinian conflict, but when the barbarous scale of Hamas’s October 7 attacks on Israel became clear, staying silent ceased to be an option, according to some management experts and others in the corporate community.

“Saying nothing speaks to cowardice,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management who focuses on corporate leadership among other issues. “They’ll have a hard time celebrating their corporate character and what they stand for if they sit mutely on the sidelines.”

With that in mind, many companies have rallied in support of Israel. Microsoft (MSFT) CEO Satya Nadella said he was “heartbroken by the horrific terrorist attacks on Israel.” Sundar Pichai, his counterpart at Alphabet (GOOG), was “deeply saddened.” Disney (DIS) donated $2 million in humanitarian relief to Israel, and banks have contributed millions, too.

All in, around 80 household-name companies in the United States have condemned the Hamas attacks, according to a list compiled by Sonnenfeld.

Many organizations, though, have opted for a more cautious approach, especially those outside the United States. In the United Kingdom, London-based football club Tottenham Hotspur, who are known for their large number of Jewish supporters, faced criticism for just saying the club was “​​shocked and saddened by the escalating crisis in Israel and Gaza.”

Monday: Earnings from Whirlpool.

Tuesday: Earnings from Coca-Cola, Verizon, General Electric, Barclays, 3M, Sherwin-Williams, Kimberly-Clark, General Motors, Haliburton, Spotify, Quest Diagnostics, Microsoft, Alphabet, Visa, and Snap.

Wednesday: Earnings from T-Mobile, Boeing, General Dynamics, Moody’s, Hess, Old Dominion, Hilton, Meta, and IBM. Fed Chair Jerome Powell delivers remarks. The US Commerce Department reports new home sales in September.

Thursday: Earnings from Mastercard, Merck, Comcast, UPS, Bristol-Myers Squibb, Northrop Grumman, Valero, The Hershey Company, Amazon, Intel, Chipotle, Ford, and Capital One. The European Central Bank announces its latest monetary policy decision. The US Commerce Department reports third-quarter gross domestic product along with September figures on new durable-goods orders. The US Labor Department reports the number of new applications for jobless benefits in the week ended October 21. The National Association of Realtors reports homes sales in September based on contract signings.

Friday: Earnings from Exxon Mobil, Chevron, AbbVie, Colgate-Palmolive, Phillips 66, and T. Rowe Price. The US Commerce Department releases September figures on household incomes, spending and the Fed’s preferred inflation gauge. The University of Michigan releases its final reading of consumer sentiment in October.

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