Q3 Was a Flash in the Pan, GDP Growth Likely Cooled in Q4
- Existing Home Sales for November increased by 5.9 percent, to a 5.0 million unit annual rate.
- The Leading Economic Index for November decreased by 0.2 percent, after two monthly increases.
- Initial Claims for Unemployment Insurance gained 17,000 for the week ending Dec. 15, to hit 361,000.
- Real GDP growth for the third quarter of 2012 was revised up to a 3.1 percent annual rate.
Housing related data continues to impress. Existing home sales were strong again in November, up 5.9 percent to a 5.0 million unit annual rate, showing no drag from Hurricane Sandy. Sales in the Northeast gained 6.9 percent for the month. The Midwest was up 7.2 percent. The South gained 7.9 percent, and the West inched up 0.8 percent. The median sales price of an existing home is now up 10.1 percent from a year ago according to the National Association of Realtors. Inventories continue to tighten. The months’ supply of existing homes for sale fell to 4.8 months’ worth in November. This is now substantially below the recent peak inventory month of July 2010 when 12.1 months’ worth of homes were sitting on the market. At below five months’ worth of new homes on the market we should say that housing markets in many areas of the country are normalizing, at least from an inventory point of view.
The leading economic index for November is not impressive. It fell by 0.2 percent in November, and has now been negative for three out of the last six months (including June and August). The coincident index gained 0.2 percent in November and the lagging index was up 0.4 percent. The swell in unemployment insurance claims due to Hurricane Sandy was a factor in the November dip in the leading index, as was the dip in U.S. equity prices. Both of those factors will likely be positives for December. Initial claims for unemployment insurance for the week ending December 15 did tick up by 17,000 to hit 361,000, but remain well below the Hurricane Sandy induced spike of early November. The third estimate of real GDP growth for the third quarter was revised up to 3.1 percent. This exactly matches our Q3 real GDP forecast from the October U.S. Economic Update, published before the advance estimate was released showing 2.0 percent growth. The positive revision to 3.1 percent reflects, in part, weaker imports, which reduces the drag on net exports, thus increasing overall GDP even though the economy is showing reduced demand for the imports. So that is a perverse signal in this case. Indicators point to substantially cooler growth for the current fourth quarter, near 1.0 percent. The Philadelphia Federal Reserve Bank reported increasing manufacturing activity in that region in December, following a decline in November attributed to Hurricane Sandy.
Market Reaction: Equity prices are up. Treasury yields are down. NYMEX crude oil is down to $89.86/barrel. The dollar is down against the yen and the euro.
Click here for a PDF version of the Comerica Economic Alert: Home Sales 122012.