Treasury yields fell after the strong Q3 GDP report this morning (+4.9%) because a big number had been incessantly talked about, predicted, and priced-in over the last three months. For the Treasury market, it was sell the rumor, buy the news. Now, the market will move on to the 4th quarter which doesn’t look nearly as good. The average of Bloomberg’s survey of economists predicts it to be much lower at +0.7%. Bloomberg Economics (Anna Wong) expects Q4 GDP to fall -0.3%, marking the beginning of the recession. She said yesterday,

Third-quarter GDP data, due out Oct. 26, is set to come in hot. Optimists will say an annualized growth rate near 5% supports their prediction that the US economy can avoid a recession. While momentum headed into year-end is indeed stronger than anticipated, our view is that the 3Q GDP strength is unsustainable. Like former Pimco founder and former chief investment officer Bill Gross, Bloomberg Economics expects a shallow recession starting in 4Q — but it will be a close call.

There are stronger negative predictions. Roger Altman’s Evercore ISI, Oxford Economics, Visa, and Ian Shepherson’s Pantheon Macroeconomics expect Q4 GDP to fall 1%. Nomura expects it to fall 1.7%. Whether Q4 GDP is negative or merely low, it is expected to be much lower as a payback for an outsized Q3, student loan payment resumption this month, elimination of pandemic-era savings, further evolution of lags from the Fed’s raising cycle, and slowing global growth (China, Europe.)

The first hint of a turn in the Q3 mini-boom (David Rosenberg’s term) in the data can be seen in continuing claims for unemployment insurance. This series has made a decisive turn upwards in the last three weeks re-tracing more than half the gains made since early April. See red oval in chart below. Higher numbers indicate a slowing labor market.

Source: Bloomberg