The economy just put up its best quarter in a year. Gross domestic product, the value of everything the country makes, grew at a 3.4% annual rate from July through September. Wall Street expected 3.1%. And yet the average worker's hourly pay, after inflation, has fallen six months in a row. Both things are true. That's the story.
The Journal's Konrad Putzier laid out where the growth came from. Consumers did most of it. Their spending grew at a 3.8% pace, the same as in the spring. People bought cars, furniture and clothes. They paid for health care, restaurants and hotels. The Journal's editorial page counts 2.52 points of the 3.4% from consumers. Business investment was the other engine, adding 1.78 points. Leave out the 2020 bounce back from Covid, and it grew faster than at any time in 15 years. The AI build-out led the way, since data centers need servers, software and chips. S&P Global Ratings figures high-tech investment made up more than a third of growth over the past year.
Two drags hid under the headline. Americans bought a lot from abroad, chips among them. Spending on imported goods rose more than a quarter at an annual rate. GDP counts what's made here, so imports took 3.3 points off the total. Housing took off another 0.12 points, mostly because of higher rates. Appliance maker Whirlpool (WHR), which leans on the housing market, said this week it expects a loss for the year.
The part the GDP number doesn't show
Now the other side of the ledger. Employers added just 29,000 jobs in September, far fewer than economists expected. Spending, after inflation, was flat in September after a 0.5% gain in August. The saving rate fell to its lowest since 2022, so many people are spending faster than their pay is rising. In a Journal op-ed, Mickey Levy of the Hoover Institution tallied price changes since late 2019. Consumer prices overall are up more than 30%. Gasoline is up 54%. Food is up more than 34%, and child care and preschool more than 31%. Car insurance and upkeep together are up about 50%. Rent is up 34%, and about a third of households rent. A raise that looked fine on paper got eaten.
The Fed sees both pictures at once. It held its rate at 3.75% to 4% on Wednesday, Oct. 28, on a 10-2 vote. Both dissenters wanted a hike. The next meeting ends Dec. 9. Thursday's growth report, and the 3.6% inflation reading that came out the same day, added weight to the case for a December hike. Satyam Panday, chief U.S. economist at S&P Global Ratings, said, "You've got more reasons to raise rates than not."
Our read
Our read, Cash Flow · M5. A strong economy and a tight household budget can both be true. The 3.4% is already adjusted for inflation. It measures how much more the country produced, not how any one family is doing. For six months, prices have risen faster than wages, and many families dipped into savings to keep spending. That spending still counts as growth. It just doesn't feel like it at the kitchen table. For the Fed, strong growth plus 3.6% inflation points toward higher rates. That's why our safe money sits in Treasury bills and floating-rate paper, SGOV in 49 books and USFR in 14. The chip and power names behind the AI build-out, like Nvidia (NVDA, 31 books) and GE Vernova (GEV, 30 books), are held at weight. Nothing added.
Here's the check for this week. Pull three months of your card and bank statements, and the same three months a year ago. Add up four lines on each: groceries, gas, car insurance, and rent or mortgage. The change between them is your own inflation rate. That's the number your raise has to beat, whatever the 3.6% headline says. If your pay fell short, the gap is coming out of savings, just as it is for the country. Fix it in the budget before it reaches your emergency fund. We're glad to walk through those four lines with you in a review. You patch the roof in October, before the rain decides for you.