Treasury yields continued to climb this morning, as markets recalibrate the terminal rate, and the prospect of a second Trump presidency comes into view. The S&P 500 closed at a record high on Friday (5,864.67), as did the Dow. Credit spreads have tightened further. Financial conditions are now a notable tailwind to economic activity, equivalent to a 72 basis point boost to GDP growth over the following year, according to the Federal Reserve’s Financial Conditions Impulse on Growth (FCI-G) Index.
Consumer spending stayed strong through September: nominal control group retail sales climbed 0.71% m/m last month, and by a 3m/3m annualised rate of 6.41%. The Atlanta Fed’s estimate for real PCE growth in Q3 was revised up to an annualised 3.6% q/q after this report. Real GDP growth is now tracking at an annualised 3.4% q/q in Q3.
The federal tax receipts data (now available for the full FY24) underlined the strength of the US economy. Federal government receipts rose 13.2% y/y (6-month moving average) last month. The 12-month moving total for individual income tax receipts hit $2.43tr in September. Withheld individual income taxes rose 7.9% y/y (6-month moving average). The 12-month moving total for corporate income tax receipts hit a record high of $530bn.
The income tax data suggest concerns over the labour market have been overblown. Wage growth remains elevated. The rise in corporate tax receipts tallies with the jump in profits to fresh highs in Q2. Nonfinancial domestic corporate net interest payments have tumbled, and delinquency rates remain low. Households have continued to deleverage, keeping the household debt service ratio below pre-pandemic levels.
