Fresh data released on Thursday suggests that the US economy is on track for steady growth through the end of 2024. According to S&P Global’s flash US composite PMI, which reflects activity across both the services and manufacturing sectors, the index came in at 54.4 for September, slightly down from 54.6 in August. Economists had expected a decrease to 54.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the US economy’s momentum remains robust as the fourth quarter begins. “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 in the report. The October flash PMI points to an annualized GDP growth rate of approximately 2.5%.
Williamson attributed the sustained growth to competitive pricing, which has also led to a drop in selling price inflation for goods and services to its lowest level since May 2020. This cooling of price pressures suggests inflation may dip below the Federal Reserve’s 2% target.
This positive outlook aligns with market expectations for the third quarter’s economic performance. Goldman Sachs projects that the US economy expanded at an annualized rate of 3.1% during Q3, bolstered by strong job reports and better-than-expected retail sales. The Atlanta Fed’s GDPNow model estimates a higher growth rate of 3.4% for the same period.
These optimistic projections have helped alleviate recession fears that emerged in early August when the unemployment rate unexpectedly rose to 4.3%. Matthew Martin, Senior US Economist at Oxford Economics, noted in a client note, “Our recession probability models improved significantly in September, reversing much of the recent rise. This strengthens our conviction in above-consensus GDP growth for 2025.”
Despite this encouraging growth data, market sentiment about the Federal Reserve’s next move remains largely unchanged. According to the CME FedWatch Tool, there is a 95% probability that the Fed will lower interest rates by 25 basis points at its upcoming meeting in November. However, markets are now pricing in fewer rate cuts for the coming year.
This shift in rate expectations has coincided with a rise in the 10-year Treasury yield, which increased by roughly 50 basis points over the past month to hover near 4.2%. Although rising yields can sometimes act as a drag on stock performance, equity strategists suggest that solid economic growth alongside higher yields may ultimately be a positive signal for the markets.
