Q3 GDP Revision, November UI Claims, October New Home Sales

Q3 Real GDP Growth Revised Up to 2.7 Percent

  • Real Gross Domestic Product increased by a 2.7 percent annualized rate in the third quarter of 2012.
  • The upward revision from the first estimate of 2.0 percent growth was a result of stronger inventories.
  • Initial Claims for Unemployment Insurance fell by 23,000 for the week ending Nov. 24, to hit 393,000.
  • New Home Sales for October fell slightly, by 0.3 percent, to a 368,000 unit annual rate.

As expected, the second estimate of real GDP growth for the third quarter was revised up to a moderate 2.7 percent from the original estimate of 2.0 percent. It is certainly welcomed news, but it does not significantly change our estimate for real GDP growth in the current fourth quarter, of 1.7 percent. Real consumer spending growth for the third quarter was actually revised down from the original estimate of 2.0 percent to now a tepid 1.4 percent. Boosting Q3 GDP was a significant upward revision in nonfarm inventories. It is not a good sign to see inventories piling up while consumer spending is sluggish. Another bad sign from the revised Q3 GDP report is that business fixed investment (equipment, software, and structures) is still very weak, bumped up from a negative 1.3 percent growth rate in the original estimate, to now a barely positive 0.7 percent, still a very disappointing number. In a normal economy (if we ever see one of those again), business fixed investment would be an accelerator at this point of the business cycle, growing much faster than headline GDP. Adding to the reduced expectations for the current fourth quarter is the drag from Hurricane Sandy, which washed out retail sales, housing markets and many businesses in the Mid-Atlantic region from late October through November. Expect to see a bounce from Sandy as reconstruction ramps up in the first quarter of next year.

Labor market data is still getting blown around by Sandy, but now we are on the leeward side of the storm. Initial claims for unemployment insurance are falling after surging in early November. For the week ending November 24, initial claims declined by 23,000, to hit 397,000, after jumping to 451,000 for the week ending November 10. Expect to see ongoing improvement with UI claims trending back to around 380,000 through December. New home sales for October were dampened by Sandy, falling slightly by 0.3 percent to hit a 368,000 unit annual rate. Sales in the Northeast fell by 32.3 percent in October, while the Midwest gained 62.2 percent, the South lost 11.6 percent and the West inched up 1.4 percent. Expect to see a regional pattern in the November data with the Northeast still recovering from Hurricane Sandy.

Market Reaction: Equity markets are up. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $88.20/barrel. The dollar is losing value against the yen and the euro.

Click here for a PDF version of the Comerica Economic Alert: GDP 112912.

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