Q3 GDP Revised, Nov. Leading Indicators, Dec. Consumer Sentiment and UI Claims

Labor Data Shines, Sentiment Warming Up, Indicators Aglow

  • Real Gross Domestic Product growth for the third quarter was revised down to a 1.8 percent rate.
  • Corporate Profits for Q3 climbed by $32.5 billion, solid but below the Q2 profit gain of $61.2 billion.
  • The Conference Board’s Leading Economic Index increased by 0.5 percent for December.
  • The University of Michigan’s Consumer Sentiment Index for December increased to 69.9.
  • Initial Claims for Unemployment Insurance for the week ending Dec. 17 fell by 4,000 to 364,000.

Third quarter GDP growth took another hit today, revised down for the second time, to 1.8 percent growth after an initial estimate of 2.5 percent. There are two points to make about the revision. First, Q3 GDP is a backward looking number with limited implications for early 2012. Forecasts for current Q4 GDP have tended to be revised up through the quarter, with our own forecast now at 3.5 percent. Secondly, there is a qualitative difference between a 1.8 percent GDP growth rate and a 2.5 percent growth rate. At 2.5 percent we can say that the U.S. economy is growing above stall speed (about 2.0 percent GDP growth) and that the expansion is self-sustaining. At 1.8 percent we are uncomfortably close to stall speed. Fortunately, the data stream as we approach the end of Q4 has been better than expected and Q4 GDP growth will be well above stall speed.  We will see GDP growth increasing through each quarter of 2011. Corporate profits for Q3 increased by $32.5 billion, below the Q2 gain of $61.2 billion. Nondurable goods manufacturers and nonfinancial service industries tended to drag on Q3 profits.

The leading economic index for November increased by 0.5 percent. Both the coincident and the lagging indexes gained 0.1 percent.  On face value, the leading index implies a muscular start to 2012. However, financial stress in Europe, accompanied by a deepening recession there, along with easing growth in China, do not show up as risk factors in the leading index. In short, the sun is shining now, but bring your umbrella just in case. U.S. consumer sentiment is improving. The University of Michigan’s consumer sentiment index increased to 69.9 for December, its fourth consecutive monthly increase after falling hard into August. Labor market data continues to impress. Initial claims for unemployment insurance fell by 4,000 for the week ending December 17, to hit 364,000. Robust gains to the household employment survey over the past four months, combined with the recent strong improvement to initial claims, suggest that the payroll survey of employment will start to show better numbers soon.  The December payroll survey should improve to the range of +175,000 jobs for the month.

Market Reaction: Equity markets opened with gains. Treasury yields are down at the long end of the yield curve. Oil is up to $99.47/barrel. The dollar is up against the yen and the euro.

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