Growth trackers point to a strong third quarter. Consumers have rarely felt worse.
Wednesday brings the busiest morning of economic data in weeks, and it lands on an economy that looks very different depending on which gauge you read.
The Atlanta Fed's GDPNow model estimated third-quarter growth at a 5.0% annualized pace as of its update, with a fresh reading due Wednesday. Consumer confidence, meanwhile, fell to 81.9 in September, its lowest level in 12 years. The two readings are hard to reconcile.
The schedule
- 8:15 a.m. ET: ADP private payrolls for September, with forecasts near 75,000 after 38,000 in August.
- 8:30 a.m. ET: Personal income and outlays for August. Economists expect the core PCE price index to rise 3.25% from a year earlier, down slightly from 3.3%, and the headline index to slow to 3.5% from 3.7%.
- 8:30 a.m. ET: The third estimate of second-quarter GDP. The first two estimates both put growth at a 1.5% annual rate.
- 9:45 a.m. ET: The Chicago purchasing managers index, forecast at 51 after 47.1.
- 10:30 a.m. ET: Weekly crude oil inventories.
Why the gap matters
The math of the split is stark. Second-quarter growth of 1.5% followed by a third quarter tracking near 5% would be a more than threefold acceleration. If that pace holds, it strengthens the argument inside the Federal Reserve for additional rate hikes. If consumer gloom is the better guide, the nowcast will fade as spending data arrive and the case for patience grows.
Inflation sits at the center of that argument. A core PCE reading of 3.25% would be modest progress, but it would leave inflation well above the Fed's 2% target at a time when some officials are still pressing for more tightening. A reading at or above 3.3% would suggest progress has stalled.
A Chicago PMI back above 50 would signal manufacturing expansion in the Midwest after a contraction reading in August, one more piece of evidence on the strong side of the ledger.
What to watch
The PCE number will set the tone for three Fed speeches Wednesday evening and for September payrolls on Friday. Traders currently price roughly even odds of an October hike. A hot core reading is the fastest way to push that back toward a sure thing.