That was a Goldilocks number

Lawrence Fuller profile picture


The rotation I spoke of yesterday morning continued into the trading day with industrial stocks like Caterpillar and Honeywell at the top of the leaderboard while Meta Platforms (Facebook) plunged a staggering 25%. That’s why the Dow Jones soared nearly 200 points, as the Nasdaq Composite fell almost as many. Once again, this is a stock picker market. Passive investors be warned. We are likely to get more of the same today as Amazon shares fell 15% after hours, following its dovish earnings report. If this rotation from growth to value continues, it should solidify the recent bear market low in the S&P 500 and set the stage for a new bull market.

market averages


The economy expanded at a 2.6% annual rate during the third quarter, beating consensus expectations of 2.3%, easing recession fears. Critics ignored the fact that a trade imbalance and an inventory dump were the reasons headline GDP figures showed a contraction for the first two quarters of the year. Now they point to the same irregularity in trade as the only reason the economy grew in the third quarter. Give me a break. Ignore the irregularities and recognize that the engine that is consumer spending has shown slow but steady growth, which is why this expansion continues.



While corporate leaders have said they are bracing for a recession in the coming months, they continue to invest as business investment rose a solid 3.7% during the quarter, offsetting the decline in housing. Consumers shifted spending from goods, which fell at an annualized rate of 1.2%, to services, which rose at a 2.8% pace. That helps explain Amazon’s disappointing outlook. The most important number, which cannot be seen in the chart below, is inflation-adjusted final sales to domestic buyers, which includes consumer, corporate and government spending. It rose 0.5% in the quarter, which was one of the slowest rates since the pandemic, but that is the Fed’s goal and it should come as no surprise.

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GDP breakdown

first trust

The good news is that not only did we have better-than-expected growth, but it came with lower-than-expected inflation, as the chain-weighted price index (GDP Price Index) that adjusts for consumer behavior during the quarter fell to 4.1%, which is lower than the 9% in the second quarter and the 8.3% in the first quarter. The consensus expected a gain of 5.3%. The Fed’s preferred measure, which is the personal consumption expenditures price index, rose 4.2% during the quarter, which was down from 7.3% in the second quarter. Sustained growth with a declining rate of inflation is what makes this a golden number, and its continuation should pave the way for the soft landing that consensus sees as a pipe dream.

One development I expect to see in the coming months, which should support consumer spending growth, is a return to real wage growth as the rate of inflation falls. While the labor market is likely to weaken a bit, we should still see wages rise at a rate of 4-5%. As the rate of inflation falls below that level, consumers will once again notice an increase in real purchasing power. That should help sustain this expansion.

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