The Thanksgiving Holiday brings with it a truncated week for US equity markets, which are closed Thursday and have a shortened session on Friday. However, it has been a busy week for economic data, with numerous economic releases yesterday and today. Here is a quick look at what has been reported.
US 3rd Quarter GDP:
Yesterday the government released the second of three estimates of 3rd quarter GDP (estimates are released in each month of the subsequent quarter), revising growth upward to a 2.5% annualized rate from the 2% rate estimated last month. The revision was driven by higher estimates for personal consumption and producer durables and lower estimates for the trade deficit. These were partially offset by a reduction in the estimate for inventory investment. The release also included a significant upward revision in 2nd quarter wages and salaries from an increase of $51.1 billion to one of $97.4 billion.
New and Existing Home Sales:
Both new and existing home sales remained moribund in October. Existing home sales declined 2.2% to an annual rate of 4.43 million. The median price fell 90bps from the year earlier to $170,500. Meanwhile, new homes sold at an annual rate of 283,000, down 8.1% from September and only modestly higher than the 275,000 annual rate in August, which was the lowest since record keeping began in 1963. The median price declined 9.4% from October of last year, to $194,900.
Durable Goods Orders:
Orders for US durable goods unexpectedly fell 3.3% in October. However, the report was not entirely negative as the increase in orders in September was revised from a gain of 3.3% to a gain of 5%. Orders for non-defense capital goods, a proxy for future business investment, fell 4.5% in October after an upwardly revised gain of 1.9% in September. The initial estimate for September’s non-defense capital goods orders had shown a decline of 20bps.
Personal Incomes and Outlays:
Incomes climbed 50bps in October and household spending increased 40bps. It was the fifth consecutive monthly advance in consumer spending. The savings rate increased from 5.6% to 5.7% as consumers continued to repair their balance sheets (Earlier this month the New York Fed indicated that total consumer indebtedness declined by $110 billion, or 90bps, between June and September of this year. Importantly, the Federal Reserve reported that revolving debt declined in September for the 25th consecutive month!).
Weekly Unemployment Claims:
Weekly claims data are extremely volatile and we rarely pay them much mind, eschewing weekly data in favor of the monthly jobs report. However, today’s release was of interest simply because the 407,000 new claims for unemployment benefits were the fewest since July 2008 and 7.71% fewer than the week before. This was far better than the consensus estimate calling for 435,000 new claims. However, this only resulted in a modest decline in the four-week moving average from 443,500 to 436,000. Given seasonal factors, last week’s improvement must be taken with a grain of salt, but it certainly looks favorable. Additionally, continuing claims declined 3.4% in the week ended November 13th.
What’s it all mean?
Taken in their entirety, this week’s flurry of economic data are indicative of what we have been predicting since the earliest buds began to bloom on the recovery. Namely, a recovery which is uneven, coming in fits and starts, and which is relatively modest given the size and scope of the recession that preceded it. High unemployment, negative equity for a significant minority of homeowners, and a large pool of foreclosure properties continue to constrain the housing market despite record low mortgage rates. Yet while the housing market is not getting much better, neither is it getting worse. In short, it continues to put in a lumpy bottom. GDP growth rates continue to indicate a moderate recovery rather than a robust one. Unfortunately, a more robust growth rate is part of the recipe for significant reduction in the unemployment rate. On the brighter side, consumers continue to rebuild their balance sheets at a quicker pace than we had anticipated, dramatically reducing their reliance on revolving debt and increasing their savings rate. An additional strength, not reported here, is corporate profitability, which, along with GDP growth, will be the hinge upon which faster employment growth swings.
Have a Great Thanksgiving!