PNC National Economic Outlook

November 2019

Solid GDP Growth in the Third Quarter; October Job Growth Was Good, Even With GM Strike

Real GDP growth was 1.9 percent at an annual rate in the third quarter, according to the advance estimate from the Bureau of Economic Analysis. 

  • On a year-over-year basis real GDP growth was 2.0 percent in the third quarter, down from above 3 percent in the middle of 2018. 
  • Consumer spending growth remains solid thanks to job gains and rising wages. But business fixed investment fell in the second and third quarters of 2019 due to uncertainty surrounding trade, as well as the ongoing problems at Boeing.
  • However, residential investment, primarily homebuilding and renovations, rose a strong 5.1 percent annualized in the third quarter in response to lower mortgage rates, the first increase in seven quarters.

Job growth was 128,000 in October, well above the consensus expectation of 85,000. Job growth was solid despite the autoworkers’ strike against GM; employment in motor vehicle and parts manufacturing fell by 42,000 over the month. There were also very large upward revisions to job growth in August and September of a combined 95,000. 

Despite the GM strike job growth has averaged 176,000 over the past three months, above the pace of 168,000 per month in the year through March 2019, taking into account preliminary revisions. Returning GM workers will boost employment in November. The unemployment rate rose a bit to 3.6 percent in October; September’s 3.5 percent rate was the lowest since December 1969. 

The details behind the increase in the unemployment rate were positive, with increases in both employment in the household survey (different from the survey of employers) and in the labor force. Average hourly earnings were up 3.0 percent in October from one year earlier, as the tight labor market leads to pay hikes.

As widely expected, the Federal Open Market Committee reduced the fed funds rate on October 30 by 0.25 percentage point, to a range of 1.50 to 1.75 percent. This was the third consecutive FOMC meeting (since late July) with a 0.25 percentage point cut in the funds rate. 

The rate is now down to its lowest level since the spring of 2018, when the central bank was gradually tightening monetary policy. With the recent cuts to the fed funds rate monetary policy is now a mild positive for economic growth. 

Fed officials have signaled that they do not expect to cut the fed funds rate again in the near term.

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