Thoughts for the Week Ahead
Monster GDP Print – Weaker Growth Ahead
Last week we had a blockbuster economic growth report: Gross domestic product (GDP), adjusted for inflation, increased by 4.9% (on a seasonally adjusted annualized rate) in Q3, a sharp rise from 2Q. Backing out the +1.3% (130 bps) inventory investment adjustment, the key growth drivers were positive growth in personal consumption expenditures and private residential fixed investment (construction spending.) The Taylor Swift and Beyonce concert tours, along with the Barbie movie and travel, leisure and restaurant spending, contributed to the higher retail spending for services (up 7.2% this year and 0.8% in September), which does not appear sustainable. Because of that, we and the market are estimating “no rate moves” by the Federal Reserve at the conclusion of this week’s FOMC meeting. Now the worry can shift back to wars and attacks on two democracies (Ukraine and Israel), whether or not deficit spending by China can help regain its economic momentum, lingering risk of a U.S. government shutdown on November 17. On the agriculture side, we get a slew of public (upstream ag) company earnings over the next two weeks (see slide 4), a WASDE report on November 9th along with regular weekly and monthly USDA and EIA biofuel reports and outlooks.
China’s Importers Sign New Purchase Agreements with U.S. Grain Exporters
The News
- With U.S. soy and corn purchases from China down 39% and 73% year/year, a group of Chinese commodity importers signed 11 “framework contracts” with U.S. exporters, including ADM, Bunge, and Cargill. The signings were conducted in Iowa last week at the China-U.S. Sustainable Agricultural Trade Forum. Commodities covered are soybeans, corn, sorghum, and wheat.
What Does It Mean?
- Not much, as the agreements included no sales terms; effectively they were simply letters of intent.
- Ironically, the Chinese Economic Daily news outlet reaffirmed China’s policy of self-sufficiency in food staples last June; but then in August, it published a piece stating that food imports in and of themselves were NOT a matter of concern.
- Interestingly, China just made a rare purchase of U.S. SRW wheat.
Next Steps:
- We will pay close attention to upcoming USDA export sales and inspections reports to determine whether the purchases come to fruition.
Numbers of Interest
3.7% Headline PCE was up 3.7%, down from 3.9% sequentially. The surprise came on income and spending with lower-than-expected income growth and a higher-than-expected increase in m/m spending.
4.9% Initial estimate of annualized growth in 3Q gross domestic product (GDP) driven by a 4% rise in consumer spending. This was funded largely by increased debt (despite higher card rates) and decrease savings given that the 3Q change in real disposable income was -0.2%.
5% KPMG’s 2023 holiday survey found that respondents intend on spending 5% more this holiday season (despite a trifecta of rising student loan payments and debt levels and reduced consumer savings)
$143 billion Latest quarterly revenue reported by Amazon, up 13% year/year
-54% Year/year change in ad spending on X (aka “Twitter”)
44 Age of the off-duty Alaska Airlines pilot accused of attempting to shut down an airplane’s engines midflight while high on psychedelic mushrooms
168 Number of vehicles involved in a series of crashes on a Louisiana interstate due to a “super fog” of marsh fire smoke and dense fog
Kenneth Scott Zuckerberg is Lead Industry Analyst, Farm Supply & Biofuels, CoBank
