5 Things You Missed This Week — Fed and BOJ Hold Rates, Samsung Chip Profit 106.5 Trillion Won, US GDP 3.4% | Economy

On the day the US Federal Reserve upgraded its read on the economy from "solid" to "strong," it left interest rates where they were. Two days later the Bank of Japan held too, and in between came US third-quarter growth (a 3.4% annual rate) and Samsung Electronics' confirmed results (107.4 trillion won in operating profit, 106.5 trillion won of it from chips). For this fifth issue, we picked those four and Korea's September industrial activity from releases dated October 24–30. We read the numbers in primary documents such as statements, press releases and company materials, and where we couldn't cross-check a figure, we say so.

1. Fed Holds Its Rate at 3.75–4.00%, With Two Members Calling for a Hike

In its October 28 (US time) statement, the Federal Reserve kept the target range for its benchmark rate at 3.75–4.00%. The vote was 10-2, and the two dissenters, Lisa Cook and Beth Hammack, wanted a 0.25 percentage point hike. Set against the September 16 statement (a hike, 12-0), the Fed's description of the economy moved from "solid pace" to "strong pace," and "Inflation remains elevated" stayed as it was. Our September 20 rate map grouped the Bank of Korea (BOK), the Fed and the Bank of Japan on the hiking side. The Fed has now paused after the BOK (October 22), and the Bank of Japan followed on October 30 (item 5).

2. US Third-Quarter Growth Comes In at 3.4% Annualized, With September PCE Inflation at 3.6% Year Over Year

In the advance estimate of third-quarter GDP it released on October 29, the Bureau of Economic Analysis (BEA) put real growth at a 3.4% annual rate, up from 2.2% in the second quarter. Investment, consumer spending and government spending all rose, while exports fell, led by petroleum products. Inventories and equipment drove the gain in investment, and within equipment, the BEA said, information processing equipment (mainly computers and peripherals) led the increase. In the September personal income and outlays report out the same day, the PCE price index rose 3.6% from a year earlier (3.1% for core), a faster pace than in August (3.4% and 3.0%) and above the Fed's 2% target. That same September, real disposable income fell 0.3% from the previous month, and real consumer spending rose by less than 0.1%. The GDP figure is an advance estimate, so it may be revised in the second estimate on November 25.

3. Samsung Electronics' Final Q3 Operating Profit Is 107.4 Trillion Won, With 106.5 Trillion Won From Chips

In the third-quarter earnings materials Samsung Electronics released with its October 29 conference call, operating profit came to 107.4 trillion won, matching the October 8 preliminary figure we covered in issue 2 (per the company's investor relations materials, before external review). The chip division (Device Solutions, DS) earned 106.5 trillion won, and the smartphone and home appliance division (Device eXperience, DX) posted an operating loss of 0.8 trillion won on revenue of 52.1 trillion won. Net income was 75.1 trillion won (71.6 trillion won in the second quarter), and net financial income came to −9.5 trillion won, turning to a loss from the second quarter's +4.7 trillion won. The company wrote that its memory business posted record results as it sharply increased sales of HBM4 high-bandwidth memory. But the materials don't include HBM volumes or revenue, or operating profit for memory alone, so its profit can't be set side by side with the results from Korean memory chipmaker SK Hynix that we covered on October 28. The company set its third-quarter dividend at a total of 30 trillion won (4,601 won per common and preferred share).

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4. Korea's September All-Industry Output Rises 3.0%, With Chip Production Up 19.2%

In its September industrial activity report released on October 30, Korea's national statistics agency said all-industry output rose 3.0% from the previous month (August: −1.2%). Mining and manufacturing grew 9.0%, and within that, semiconductors rose 19.2%, led by memory such as DRAM and flash, while automobiles rose 39.9%. Facilities investment grew 5.3% from the previous month, and 10.1% from a year earlier, led by machinery such as semiconductor manufacturing equipment (22.2%). Retail sales also rose 3.6% from the previous month but were 0.4% lower than a year earlier, with durable goods such as passenger cars down 10.8%. The September figures are preliminary and may be revised, and the full third-quarter picture is in our October 29 story on Korea's third-quarter growth of 1.0%.

5. Bank of Japan Holds at 1.25% (8-1), With Tokyo's October Core Inflation at 2.6%

In its October 30 decision statement, the Bank of Japan kept its short-term policy rate at 1.25%, its first hold since raising it from 1.00% on September 18. The vote was 8-1, and the lone dissenter, Policy Board member Hajime Takata, proposed raising the rate to 1.5%, a motion that was voted down. The basic view of its Outlook Report, released the same day, expects core inflation to run clearly above 2% and lists rising chip prices driven by AI-related demand as one of the reasons. Tokyo's October consumer prices (mid-month preliminary), released that day by Japan's Ministry of Internal Affairs and Communications (Statistics Bureau), rose 2.8% from a year earlier, up from 2.7% in September. Core prices (excluding fresh food) slowed to 2.6% (September: 2.7%), and prices excluding fresh food and energy slowed to 2.6% (September: 2.9%). Going by the ministry's contributions to the all-items index, fresh food (+0.26 percentage point) and energy (+0.18 percentage point), where electricity and city gas turned to increases, widened the rise. Water charges (−0.24 percentage point) and food excluding fresh food (−0.12 percentage point) narrowed it.

PRISM Insight

"Trend Connection"

Pausing in the Face of Strong Numbers

The BOK (October 22, 7-0), the Fed (October 28, 10-2) and the Bank of Japan (October 30, 8-1) all paused this time after raising rates at their previous meetings. The BOK's decision statement cited the need to "examine the effects of the two rate increases" (PRISM translation; see issue 4), and the Fed's statement gained a new sentence: "The accumulation of more information will help the Committee determine the policy stance appropriate..." Two Fed members and one Bank of Japan member argued for a hike.

In PRISM's view, most of the numbers released around the holds pointed toward hiking. The Fed described the economy as growing at a "strong pace," and the next day US third-quarter growth came in at a 3.4% annual rate and September PCE inflation at 3.6% year over year. The Bank of Japan held rates even as it projected core inflation running clearly above 2%. The case for waiting came from households. That same September, US real disposable income fell 0.3% from the previous month, and Korea's retail sales rose 3.6% from the previous month but were 0.4% lower than a year earlier.

This week's data alone can't settle which case carries more weight. The first data to test them will be the US consumer price index (CPI) for October on November 10 and the second estimate of US third-quarter GDP on November 25, and the BOK makes its first decision since the October hold at its Monetary Policy Board meeting on November 26.

What to Watch in the Next Two Weeks

Next week, PRISM will look separately at capital spending and cash flow at Microsoft, Alphabet and Amazon, which reported earnings this week. That story takes the chip buyers' side of a quarter in which Samsung's profit was concentrated in semiconductors.

In the US, the BEA releases the September trade balance on November 4, and the October CPI comes out on November 10. In the trade data, we'll watch petroleum products, which led the third-quarter drop in exports, and in the CPI, whether prices move in the same direction as September's PCE inflation. Japan releases September real wages on November 6.

5 Things You Missed This Week — Fed and BOJ Hold Rates, Samsung Chip Profit 106.5 Trillion Won, US GDP 3.4%