Q3 GDP Not Bad, But Not Good Either

Domestic spending helped hold up GDP growth in the third quarter which came in at +1.5%. Final sales came in at 3% in the quarter. Both residential and nonresidential investment slowed in the third quarter with both net exports and inventories pulling down GDP.

Personal consumption expenditures slowed 4 tenths but are still up +3.2%. Durables, including vehicles, was the strongest consumer category in the quarter. Government purchases, another area of domestic-centered spending, also contributed to the quarter’s growth.

The Federal Reserve was completely off in their “transitory thesis” scenario in which GDP would push higher in the second half of 2015. Just the opposite happened with GDP plunging from its Q2 growth rate of +3.9%.

International Trade In Goods Boosts Q3 GDP Estimates

The advance September US International Trade In Goods report was surprisingly strong, following weeks of mixed messages in other (non-housing) US data out for the month. The trade deficit reading was nearly 10% smaller than expected, as imports contracted (mostly energy, some goods) and exports rose 2.4%, spread across a broad spectrum of sectors. One analyst commented that the report could significantly benefit Q3 GDP, and the Atlanta Fed cited the report as it boosted its Q3 GDPNow estimate to +1.1% from +0.8% prior.

Imports are counted as a subtraction in the national accounts and so this report gives a boost to third-quarter GDP estimates.

The GDPNow forecast for Q3 GDP has been raised 1.1%:

GDPNow Q3 Forecast

Durable Goods Orders Contracts More Than Expected

There was some softness in the preliminary September durable goods report, while the August numbers were revised lower again to -3 percent. The headline decline of -1.2 percent was largely a result of a -36 percent drop in civilian aircraft bookings, which outweighed a 12 percent rebound in the defense category. Core shipments were the bright spot, up +0.5 percent, but there was an offsetting downward revision to August. Core orders were down slightly.

Other sub-components were also weak with ex-transportation down -0.4 percent following a downward revised 0.9 percent decline in August.

This report confirms what we saw in the industrial production data where manufacturing in September slipped for the fourth time in five months. The rising U.S. dollar causing weakness in exports is what is hurting the factory sector.

New Home Sales Fall In September

Sales of new homes fell in September, with the annualized rate dropping to 468K from August’s downward revised 529K rate. The data widely missed expectations and provided a strong contrast to the September existing home sales number, which came very close to the eight-year, post-crisis high seen in the August report.

The rise in home prices is hurting sales. The median price of a new house rose 2.7 percent in the month to $296,900 which is 13.5 percent higher than a year ago. Price appreciation is now way out in front of year-on-year sales growth which is now only up 2.0 percent vs the August sales rate of 16.5 percent.

Industrial Production Continues To Contract

Industrial production fell -0.2% in September showing a continued contraction of the U.S. economy.

The manufacturing component fell -0.1% for a second straight decline and the fourth decline in five months. The ok news is that industrial production was revised upward for August, from an initial decline of -0.4% to -0.1%. But the improvement was due to sharp upward revisions to the utility and mining components which are more defensive sectors.
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Philly Fed Business Survey Shows Contraction Spreading

The Philadelphia Fed Business Outlook Survey for October surprised to the downside. The consensus range was -4.0 to 3.0. The actual number was -4.5.

The Philadelphia Fed Business Outlook Survey suggests that the contraction in the U.S. economy from weak exports is spreading outward and now seeping into the Mid-Atlantic manufacturing sector. This is the second drop in a row.
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