GDP and NFP Inconsistent

Apollo Chief Economist

The just-released GDP data shows that the economy was accelerating during the quarter with Liberation Day.

The strength in GDP growth over the summer is inconsistent with the observed slowdown in employment growth over the same period, see chart below.

The economy cannot be on the brink of a recession with a weaker labor market, and at the same time accelerating with stronger GDP growth.

What is likely happening is that job growth is weaker because of AI implementation and lower immigration.

At the same time, the trade war shock is fading into the background, and the probability of a recession is falling.

Following the release of the GDP data, we have revised down the 12-month recession probability to 20%.

With GDP growth at 3.8% and inflation at 2.9% and rising, it is becoming more and more difficult to argue for additional Fed cuts.

GDP and NFP inconsistent
Sources: US Bureau of Economic Analysis (BEA), US Bureau of Labor Statistics (BLS), Macrobond, Apollo Chief Economist

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