U.S. economic data through the end of October was reasonably positive.
We got our first estimate of third quarter real GDP growth this morning, and it came in about as expected, at a 2.9 percent annualized growth rate. A key underlying current in 2016 GDP data has been the large swing in inventories. Lower inventory accumulation in Q1 and inventory destocking in Q2 were anchors in GDP growth in the first half of 2016. In Q3 we see inventories being restocked, adding to GDP. Also, exports of goods surged in Q3, resulting in a gain from net trade. Consumer spending stepped down to a sustainable 2.1 percent growth rate in Q3. Business fixed investment was still weak, growing at just a 1.2 percent rate. Residential investment was also weak in Q3, declining at a 6.2 percent annual rate. Overall government spending was held in check by a decline in state and local spending. The first estimate of Q3 GDP is consistent with our expectations of ongoing moderate GDP growth through the current fourth quarter.
New orders for durable goods were essentially unchanged in September, easing by just 0.1 percent after gaining 0.3 percent in August. Core orders, nondefense capital goods excluding aircraft, dipped by 1.2 percent. This was a moderately weak report, suggesting that U.S. manufacturing is not feeling much momentum.
The Kansas City Fed reported that manufacturing activity picked up in October, but the Richmond Fed report sluggish manufacturing activity.
Initial claims for unemployment insurance decreased by 3,000 to hit 258,000 for the week ending October 22. Continuing claims fell by 15,000 to hit 2,039,000 for the week ending October 15.
The Case-Shiller U.S. National House Price Index for August increased by 0.5 percent for the month, and was up 5.3 percent over the previous 12 months.
New home sales increased by 3.1 percent in September, to a 593,000 unit annual rate. This continues an upward trend that began in mid-2011.
The National Association of Realtors’ Pending Home Sales Index for September increased by 1.5 percent, adding support to estimates of October existing home sales. Mortgage apps for purchase show no clear trend through September. Refi apps eased through the second half of the month.
The Conference Board’s Consumer Confidence Index ticked down in October to 98.6. Perhaps it was the electioneering. Sometimes, when the going gets tough, the tough go shopping.
The FOMC has a meeting next week, over Tuesday and Wednesday. We believe that the risk averse Yellen Fed will remain so and not increase the fed funds rate at next week’s monetary policy meeting. We continue to look for a fed funds rate hike at the December 13/14 FOMC meeting. According to the fed funds future market, the odds of a rate hike next week are just 9.3 percent. Odds for a December hike climb to 78.5 percent.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 10-28-2016.