Barbara Reinhard, CFA
Senior Managing Director, Chief Investment Officer, Multi-Asset Strategies and Solutions
The U.S. Citi Economic Surprise Index turned positive for the first time since early May, showing that more recent economic data releases have been surprising on the upside than on the downside. While recent strong economic numbers may have an impact on the pace of Fed rate cuts, there’s another factor at play here: have we reached the end of U.S. economic pessimism?
Last week’s nonfarm payroll number showed that the U.S. added a whopping 254,000 jobs in September, greatly surpassing expectations of 150,000, at the same time as upward revisions for the July and August figures came in at an additional 72,000 jobs. Wage growth also exceeded estimates, with average hourly earnings up 0.4% for the month and 4% year on year, while the unemployment rate fell to 4.1%.
Coupled with strong corporate earnings and sales growth across the board, the U.S. economy still seems in good shape. The Atlanta Fed’s GDP forecast supports this—it’s currently sitting at 3.2% for Q3 after last week’s economic releases, which include ISM data and auto sales.
This stronger-than-expected economic data has led the market to scale back expectations for Federal Reserve rate cuts, though it still anticipates several more through the end of 2025. This rare combination of rate cuts and seemingly no recession should bode well for U.S. equities, and we remain firmly overweight.
Maverick Lin contributed to this article. All data: Bloomberg.