Economic growth slows in third quarter as Biden unveils “Build Back Better” framework
- November 1, 2021
The American economy suffered its worst quarter since Q2 of 2020 as gross domestic product slowed to 2% growth (annualized) in the third quarter. President Biden also revealed the “Build Back Better” plan framework amidst a week filled with a plethora of economic data.
The American economy suffered its worst quarter since Q2 of 2020, as government stimulus continues to shrink and inflation continues to rise. U.S. gross domestic product slowed to 2% growth (annualized) in the third quarter, falling from 6.7% in the second quarter and coming in below market expectations of 2.7%. Driving the drop in GDP was a downturn in personal consumption, as it grew by 1.6% in Q3 after reaching 12% in Q2.
After months of negotiation, President Biden unveiled the “Build Back Better” plan framework, a $1.75 trillion package that aims to tackle climate change, expand Medicare coverage, broaden access to pre-school for 3- and 4-year-olds, and extend the child tax credit. Items left off the updated framework that were originally included are free community college and paid family leave.
The U.S. consumer confidence index jumped to 113.8 for the month of October, beating a forecast of 108. The index rose for the first time since hitting 128.9 in June, as rising prices due to supply chain limitations had dimmed consumer confidence over the previous few months.
On Friday, personal consumption expenditures (PCE) data for the month of September were released, rising 0.6% and meeting market expectations. The increase reflected a jump in spending for services, including healthcare and food services. On the other hand, spending on motor vehicles and parts saw a sharp decline.
As a result of all the data, short-term rates spiked throughout the week, while 5- to 30-year rates saw a considerable drop.
Labor market update
Initial jobless claims for the week ending October 23 fell to a new pandemic-low of 281,000, coming in below market expectations of 289,000. This marked the fifth straight week of declining initial jobless claims as unemployment benefits have subsided. The four-week average for initial jobless claims also fell below 300,000 for the first time since the start of the COVID-19 pandemic. To round out the positive news in the labor market from last week, continuing jobless claims fell to 2.243 million compared to the 2.240 million expected.
Crude oil experienced a volatile week after prices climbed early due to forecasts predicting higher oil prices to close 2021. However, reports showed that crude oil inventories rose by 4.3 million barrels for the week ending October 22, coming in higher than expectations of a 1.9-million-barrel gain. An increase in net imports of crude oil contributed to the rise in inventories. As a result, prices fell and WTI crude finished the week at $83.22/bbl. Aluminum prices also fell last week after China announced a price cap on coal to ease the energy crisis currently occurring. LME Aluminum ended the week at $2,695/MT. Despite the falling prices over the last week, rising commodity prices have caused many companies to explore hedging in the recent months.
Another heavy week of economic data lies ahead, highlighted by an FOMC meeting on Tuesday and Wednesday. Investors will certainly listen for the Fed’s take on rising inflation and the recent GDP data. October nonfarm payrolls and unemployment rates will also be released on Friday.
Subscribe to receive our market insights and webinar invites
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0302
Our featured insights
Inflation continues to rise as crypto plunges
Inflation numbers are hot off the press and exceeding expectations as reports that the price of goods and services rose by 8.3% since last April. Although there is hope that we are falling from the peak numbers seen in March, consumer fears of a recession are growing and permeating the market—not...
Hedging fundamentals webinar series
Join these introductions to hedging and hedge accounting to gain a foundation for managing financial risk.
Fed raises rates amid a plethora of employment data
The Federal Reserve raised the Fed Funds rate by 50 bps, bringing in the largest hike since 2000 in an effort to fight the highest inflation rate the country has seen in 40 years. Job openings and job quits hit record highs in March, while April nonfarm payrolls came in above expectations.
Mixed first quarter sets stage for volatile year
The familiar story of global volatility continues. U.S. GDP stumbled for the first time since early in the pandemic. Global currencies weakened against the dollar, as dollar strength reached its highest levels since the early 2000s. Supply chain concerns rise from record diesel fuel prices.
Uncertainty continues as markets respond to imminent rate hikes, war in Ukraine
Inflation and global turmoil continue to plague the international markets as the war in Ukraine persists. Market expectations in response to impending further rate hikes by the Federal Reserve pushed stocks down and bond yields higher. Stronger relative performance in the U.S. pushed the dollar...
How to maintain treasury proficiency and continuity amid the “Great Resignation”
Today’s job market creates challenges and opportunities for treasury teams. While high turnover warrants increased focus on retention and contingency planning, it also offers the chance to attract new talent, reinvent your team dynamic, and streamline operations.
Headline inflation hits 40-year highs, recession chatter echoes throughout markets
Headline CPI data surpassed its 40-year high in March but slowing core inflation provided investors with a glimmer of optimism. Markets are closely monitoring Fed movements as Chairman Powell attempts to navigate a difficult balancing act of cooling off alarmingly high price pressures while...
Fed hawks have landed
Released Fed minutes show a growing hawkish and tightening mindset across FOMC members. The release drove rates higher as members called for fast balance sheet reduction and double rate hikes in upcoming meetings. Meanwhile, commodity hedges for petroleum products break down.