Fresh data released Thursday reveals that the U.S. economy is continuing to grow at a healthy pace, with projections suggesting robust economic activity through the end of 2024. The latest figures from S&P Global’s flash U.S. composite Purchasing Managers’ Index (PMI) for September came in at 54.4, down slightly from 54.6 in August, and just above economists’ expectations of 54.3.
Steady Economic Growth Through the Fourth Quarter
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the data indicates that the U.S. economy is maintaining its positive momentum into the final quarter of the year. “October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter,” Williamson said.
The October flash PMI, which tracks activity in both the services and manufacturing sectors, aligns with an annualized GDP growth rate of around 2.5%. Williamson highlighted that competitive pricing has been driving sales, helping to ease inflationary pressures in the market. As a result, the selling price inflation for goods and services is at its lowest level since May 2020. “These weaker price pressures are consistent with inflation running below the Fed’s 2% target,” Williamson added.
Strong Economic Projections for Q3 GDP
The upbeat PMI data aligns with broader economic expectations for the U.S. economy. Market participants are anticipating a strong third-quarter GDP print, bolstered by a solid September jobs report and better-than-expected retail sales. Goldman Sachs is forecasting that the U.S. economy grew at an annualized rate of 3.1% in Q3, while the Atlanta Fed’s GDPNow model projects an even higher 3.4% growth rate.
These stronger-than-expected growth projections have helped ease concerns of a potential recession that began to surface in early August when the unemployment rate unexpectedly rose to 4.3%. The increase triggered fears of a slowdown, as rising unemployment is often seen as a recession indicator. However, improved data from September has quelled those concerns.
Matthew Martin, senior U.S. economist at Oxford Economics, noted the shift in sentiment. “Our probability of recession models showed marked improvement in September, reversing much of the recent rise,” he wrote in a note to clients, adding that this strengthens confidence in their above-consensus GDP growth forecast for 2025.
Fed’s Next Moves and Market Expectations
Despite the positive economic data, the outlook for the Federal Reserve’s upcoming policy decisions remains largely unchanged. Markets currently expect the Fed to lower interest rates by 25 basis points at its next meeting, according to the CME FedWatch Tool, with traders pricing in a 95% chance of a rate cut.
However, projections for additional Fed rate cuts over the next year have shifted. Markets are now pricing in one fewer rate cut than expected in early October and two fewer cuts than projected in mid-September when the Fed slashed rates by half a percentage point.
The latest economic data shows that the U.S. economy continues to grow at a solid pace, with inflationary pressures easing due to competitive pricing strategies. While concerns of a potential recession have subsided, all eyes are on the Federal Reserve as markets adjust their expectations for future rate cuts. With strong projections for third-quarter GDP growth, the U.S. economy appears to be on track for sustained expansion into 2024.
