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U.S. GDP Rose 1.9% in Q3

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Some big economic data has come out this morning, amidst one of the busiest times in Q3 earnings season. Private-sector payroll tallies from Automatic Data Processing (ADP - Free Report)  and the first read on U.S. Gross Domestic Product (GDP) for Q3 are taking headlines, ahead of a new Fed decision on interest rates coming this afternoon.

ADP for October came in at 125K, slightly higher than analysts’ expectations, though the revision to September’s headline was drastically reduced (and for the second straight month): 93K private-sector jobs created in September, as opposed to the 135K originally reported. October’s 125K remains above the pace needed to keep overall unemployment stable.

Medium-sized companies (50-499 employees) made up the largest segment of new hires at 64K; large companies brought 44K and small businesses — which in such a tight labor market face tough competition from bigger firms with things like stock options and healthcare coverage — came up with 17K new jobs this month. Goods-producing jobs finished in negative territory, -13K, while Services provided +138K in the private sector.

Goods producers had been displaying lower numbers to the positive in recent months, but this is the first sub-headline negative number in quite some time. Construction, Manufacturing and Natural Resource/Mining each fell 4K jobs over the past month. In the Services sector, Education/Healthcare grew 41K, followed by Trade/Transportation at 32K, Leisure/Hospitality at +19K and Professional/Business Services +18K. According to the report, the 65K striking employees at General Motors (GM - Free Report)  over the month are not accounted for in this report.

The 3-month average for private-sector payrolls comes in exactly where October’s headline is: 125K. This, as said before, is still above the pace needed to cover retirees in the U.S. workforce month over month, but the margins are definitely slimming. Several months have passed since our last month with more than 200K jobs; should we slide beneath 100K in future months, this will lead to a rise in unemployment.

Q3 GDP surprised to the upside ahead of today’s opening bell: +1.9%, only 10 basis points off Q2’s final read of 2.0%. This print is better than the consensus 1.6%, led by personal consumption, which came in at 2.9%. The Q3 Personal Consumption Expenditure (PCE) index reached 1.5% on the month. These figures are down from Q2’s final 4.6% and 2.4%, respectively, although PCE quarter over quarter actually rose to 2.2% from last quarter’s 2.1%. The numbers indicate not just a confident American consumer, but one who is single-handedly keeping the economic at stronger-than-expected levels. Clearly the Goods-producing figures were a disappointment.

It appears unlikely this data will hold any sway over the Fed’s expected decision at 2pm ET today to cut interest rates again by 25 basis points to 1.75%. It would be the first time since mid-2018 that interest rates would have fallen beneath the 2% threshold. What analysts will be playing close attention to is the language Fed Chair Jay Powell uses regarding the possibility of future cuts. With near-2% economic growth and jobs numbers in healthy territory, will the Fed find new justifications to keep cutting?

General Electric (GE - Free Report) reported Q3 earnings this morning, as well, beating estimates on the bottom line by 3 cents to 15 cents per share, a penny above the year-ago quarter. This has helped the stock climb 8.7% at this hour of the pre-market, although shares remain below $10 at this stage. However, revenues of $23.36 billion missed expectations by almost 20%, and well off the Q3 2018 top line of $29.57 billion. 

For GE, its myriad problems — many of which are being successfully addressed and some of which (like production of components for Boeing’s beleaguered 737 MAX) remain — continue to stand front and center. What traders are taking heart in is that the company is heading solidly, if slowly, in the right direction. 

After today’s closing bell we see some big names reporting earnings results: Apple (AAPL - Free Report) , Facebook (FB - Free Report) and Starbucks (SBUX - Free Report)  among them. A better-than-expected Q3 earnings season so far has been a big part of the S&P 500 trading at or near new all-time highs this week.

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