By Greg Heym, Brown Harris Stevens Chief Economist and host of Crossing The Line

This was a huge week for economic data, with the release of the GDP, PCE, and employment reports. Welcome to the trifecta edition of The Line. Let's go in order, starting on Wednesday.

The U.S. Economy Grew at a 2.8% Annual Rate in 3Q24

Gross domestic product—the value of all goods and services produced in the United States—rose at a 2.8% annual pace in the third quarter, coming in just short of expectations. As you may remember, the biggest contributor to GDP is consumer spending, which accounts for about 70% of the total number. Consumers did not disappoint last quarter, as their spending rose at a 3.7% annual rate, the highest number since 1Q23. The other big contributor to economic growth in the third quarter was government spending, which rose at a 5.0% annual rate.

Here's how each of the four main components of GDP contributed to economic growth last quarter:

Add that all up and you get 2.8%, which is a pretty solid number and yet another sign the economy is in good shape. A big thanks for consumers for consuming; hope you keep up the good work in the months to come.

Now on to Thursday’s news.

PCE Inflation Up 2.1% Over the Past Year

The personal consumption expenditures—PCE for short—price index rose 0.2% last month, and was 2.1% higher than a year ago. Both these figures were in line with Dow Jones estimates. Remember that the PCE price index is the Fed’s favorite measure of inflation, as it’s based on more complete data than the CPI figure.

The core PCE index—which excludes food and energy prices—rose 0.3% in September and is up 2.7% over the past twelve months. A big part of the difference between the headline and core PCE figures can be attributed to the recent decline in energy prices. Energy prices were down 5% in August, and 8.1% in September.

This report shows us that inflation continues to edge closer to the Fed’s 2% target annual rate, which should keep the Fed on their rate-cutting schedule. Expect a 0.25% rate cut at each of the Fed’s meetings this month and in December.

Finally, on to today’s news.

Employment Rose By Only 12,000 In October

Now that’s a scary headline. Before I try to explain what happened, here are the key points in today’s jobs report:

• Employment rose by just 12,000 last month, much lower than the 100,000 Dow Jones estimate.

• That’s the lowest increase in employment since December 2020.

• Job gains for August and September were revised down by a total of 112,000.

• The biggest increases in hiring were in health care (+52,000) and government (+40,000).

• The unemployment rate was unchanged at 4.1%.

• Wages rose 0.4% in October and are 4.0% higher than a year ago.

Let’s start with the headline number. Why just a 12,000 increase in employment? The Boeing strike and hurricanes Helene and Milton. If that’s true, why were economists looking for 100,000 jobs instead of 12,000? Great question. The best answer I can give is that the impact of the hurricanes and Boeing strike are not so easy for us humble economists to predict. The BLS also mentioned in its press release that fewer companies than normal responded to their October survey, which could also have impacted the results.

Many economists will say to ignore this report, as the impact of the strike and hurricanes on hiring is fading. But there are a few other things to worry about in this report, most notably:

1. The big downward revision in the August and September data. Any time 112,000 jobs are erased from the prior two months, I know I get worried.

2. As I mentioned last month, the bulk of the hiring lately has been in health care and government. The reason that’s concerning is those two industries are not reflective of the current state of the economy. People get sick and governments spend money in both good and bad economic times.

3. Yes, the unemployment rate was unchanged last month, but that wasn’t due to an uptick in hiring. The household survey that is used to calculate the unemployment rate showed a loss of 368,000 jobs last month. The only reason the unemployment rate didn’t go up was a sharp reduction in the labor force. Remember, you must be actively looking for a job to be unemployed.

Markets weren’t too worried about the October jobs report when it came out this morning, and futures started rising immediately after its release. That’s easy to understand, since we know how badly the stock market wants big rate cuts. This report, along with the good news on inflation, gives the Fed the ammo it needs to accelerate rate cuts if it so chooses. That said, I’m sticking with my prediction of a 25-basis point cut in November and December.

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