GDP Soars High Like Santa

Since it is Christmas time and New Year’s Eve is right around the corner, our team at Sunrise Economix wants to give you a quick summary and news of the week for those still in a turkey coma or only on their second cup of coffee. 

Mortgage Rates Near Yearly Lows 

Rates ended near the year’s low, with the Conventional Freddie Mac 30-year average weekly rate at 6.18% and the 15-year rate at 5.5%. Government loans, like FHA, are right at 6.064% for a 30-year fixed. The stock market continues to soar higher despite mixed news coming out this week. The Quarterly Census of Employment and Wages (QCEW) data indicated that employment was significantly worse than the Bureau of Labor Statistics (BLS) had previously reported. No surprise there.  

GDP Surprises but Inflation Warms 

But, GDP saw a big upside surprise. Is it as good as it seems? The inflation component was hotter than expected. This caused an early decline in interest rates on Tuesday, but they clawed their way back to even by the end of the day. Wednesday’s markets closed early, remaining closed for Christmas, and reopened on Friday for a quiet day. What day is it anyway? 

QCEW Reveals True Job Counts 

Diving a little deeper, the QCEW was released, providing actual employment data. It doesn’t receive much attention, as it spans from April 2024 to March 2025. It takes some time to compile real (not statistically modeled) data on employment from the entire country.  

The BLS monthly Jobs Report has continued a pattern of releasing and revising lower numbers every month. One main reason for this is the faulty birth/death model. This statistical model projects the creation (birth) and closure (death) of small businesses. Companies provide no actual data to indicate who they hired/fired. It is all just guesswork based on prior trends.   

Since the COVID pandemic, this modeling has been faulty. The QCEW showed that the BLS overstated job growth by 52%, definitely not a rounding error. The BLS reported that 1.923 million jobs were created during this period. Then, they revised their numbers down to 1.524 million. Now enters the QCEW, showing that the actual number of jobs created was 420,000. This means the BLS overstated the number of jobs by 1.503 million compared to their original estimates.  

Obviously, this is important to interest rates as the markets closely watch the monthly BLS release. Can you imagine how much better the rates would have been if the Jobs Report had shown over 100,000 fewer jobs each month? 

GDP Breakdown and Drivers 

Gross Domestic Product (GDP) came in at 4.3% for Q3 as a preliminary reading. There are normally three “readings” each quarter: the advanced, preliminary, and final. The government shutdown caused the advanced reading to be skipped. GDP is comprised of four components: consumption, investment, government spending, and net exports (exports minus imports).  

PCE Inflation Rises but Stabilizes Bonds 

Consumption or consumer spending is the largest component and was very strong. There was a rush to purchase electric vehicles ahead of the expiration of the EV tax credit. There was an increase in defense government spending, and the trade imbalance has slightly improved due to tariffs. All these items contributed to the strong GDP.  

The Personal Consumption Expenditures (PCE) inflation component of GDP showed a sharp rise from 2.1% to 2.8%, and the Core rose from 2.6% to 2.9%. It met market expectations and is likely why bonds were able to recover to a level after being down significantly at the market open.   

Looking Ahead: Next Week’s Economic Calendar Highlights 

Next week is also shortened by the New Year’s Day holiday.   

Tuesday, (December 30): FHFA and Case-Shiller Home Price Indices, Consumer Confidence, and JOLTS (Job Openings and Labor Turnovers) 

Wednesday, (December 31): Initial and Continuing Jobless Claims, Markets closing at 2pm EST 

Thursday, (January 1): New Year’s Day holiday