‘Tis the season for another upward revision in Q3 GDP: What We Learned During the Week of December 19 – 23

July, August, and September were the best 3 months of U.S. economic growth in 2 years. But data also indicates the rate of economic growth slowed in November. Here are the 5 things we learned from U.S. economic data released during the week ending December 23.

#1Q3 GDP was even better than previously believed. The Bureau of Economic Analysis’ 3rd estimate of Q3 Gross Domestic Product (GDP) finds the U.S. economy grew at a seasonally adjusted rate of +3.5%, up from the +3.2% growth rate reported a month ago and the 2.9% gain reported 2 months ago. This was the fastest pace of economic expansion in 2 years. The most recent upward revision was the product of higher estimates for nonresidential fixed investment, personal consumption, and state & local government spending. Making positive contributions to Q3 GDP growth were consumption (adding 203-basis points to GDP), net exports (85-basis point contribution), the change in private inventories (49-basis point contribution), nonresidential fixed investment (18-basis point contribution), and government expenditures (14-basis point contribution). Dragging down GDP growth was residential fixed investment (costing 16-basis points in Q3 GDP growth). Corporate profits from current production jumped 5.8% during the quarter to a SAAR of $2.139 trillion. This was 2.1% above year-ago levels.gdp-q32016-122316

#2But 2 reports suggest economic growth slowed in November. The Chicago Fed National Activity Index, a weighted average of 85 economic indicators, shed 22-basis points during the month to a reading of -0.27. This was the measure’s lowest reading since August after being pulled down by production-related indicators (down 19-basis points to a negative -0.20 contribution to the CFNAI) and consumption/housing indicators (down 7-basis points to a negative -0.10 contribution). Showing small signs of improvement were indicators associated with employment (up a basis point to +0.02) and sales/orders (up 3-basis points to +0.01). Overall, only 31 of 85 of the indicators that make up the CFNAI made a positive contribution to the index. More positively, the 3-month moving average of the CFNAI improved by 6-basis points to -0.14. This reading, while an improvement from October, is indicative of below average economic growth.

The Conference Board’s Leading Economic Index held steady during November at a reading of 124.6 (2010 = 100). The stagnation occurred even as 7 of the 10 underlying index components improved during the month, including the interest rate spread, jobless claims, and the stock market. Dragging down the measure were indicators associated with building permits, average weekly manufacturing hours, and new manufacturing orders. The coincident index eked out a 1/10th of a point increase to a reading of 114.6, with 3 of 4 index components making a positive contribution to the index (led by nonfarm payrolls). The lagging index added 4/10ths of a point to 123.2 4 of the index’s 7 components made positive contributions, led by the duration of unemployment and the amount of outstanding commercial & industrial loans.

#3There was a 2nd straight month of only a modest increase in personal spending in November. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) inched up 0.1% during the month, matching a similarly small gain during October. Spending on goods also grew 0.1%, with the 0.2% increase in spending on nondurables more than counterbalancing the 0.1% drop in spending for durable goods. Spending on services grew 0.2% during the month. Versus a year earlier, real personal spending has increased 2.9%. The small increase in spending occurred during November as both personal income and disposable income remained flat in nominal terms, with the latter slipping 0.1% after adjusting for price changes. Real disposable incomes have grown by only 2.3% over the past year. The savings rate slipped 2/10ths of a percentage point during the month to +5.5%.

#4Sales of previously owned and new homes both grew in November. The National Association of Realtors puts the seasonally adjusted annualized sales rate (SAAR) of previously owned homes at 5.61 million units, up 0.7% from October 2016 and 15.4% from a year earlier. Sales grew during the month in the Northeast (+8.0%) and the South (+1.4%) while the count of transactions fell in both the Midwest (-2.2%) and West (-1.6%). All 4 Census regions enjoyed double-digit percentage sales gains from their November 2015 marks. Housing inventories tightened further during the month—the 1.85 million homes on the market at the end of November were down 8.0% from October 2016, off 9.3% from November 2015, and represented just a 4.0 month supply. The median sales price of $276,800 was 4.9% above the November 2015 median sales price. The press release tied November’s sales gain to the “healthiest job market since the Great Recession” and buyers rushing in the housing market before interest rates rise.

Meanwhile, the Census Bureau estimates new home sales jumped 5.2% during November to a SAAR of 592,000 units (+16.5% vs. November 2015). Sales grew during the month in both the Midwest (+43.8%) and the West (+7.7%) and held steady in the Northeast while falling 3.1% in the South.  All 4 Census regions saw new home sales rise well above their November 2015 levels, with 12-month comparables spanning from a 10.8% gain in the West to a 39.4% surge in the Midwest. While the count of unsold new homes edged up 1.6% during November to 250,000 units (+8.7% vs. November 2015), this represented a still tight 5.1 month supply.

#5Consumer confidence hit a nearly 13-year high in December. The Index of Consumer Sentiment from the University of Michigan gained 4.4 points during the month to a seasonally adjusted reading of 98.2 (1966Q1 = 100). This was the measure’s highest reading since January 2004, although the index was up by only 2/10ths of a point from its preliminary December reading reported a few weeks ago. The current conditions index added 4.6 points during December to a seasonally adjusted reading of 111.9 while expected conditions index increased 4.3 points to 89.5. Over the past 2 months, the headline index has added 11.0 points. The press release tied the surge to “[a]n all-time record number of consumers spontaneously [that] mentioned the expected favorable impact of Trump’s policies on the economy.” This included expectations for “a stronger economy would create more jobs, ” but they were less sanguine on wage growth.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 17, 2016, First-Time Claims, seasonally adjusted): 275,000 (+21,000 vs. previous week; +6,000 vs. the same week a year earlier). 4-week moving average: 263,750 (-3.8% vs. the same week a year earlier).
Durable Goods (November 2016, New Orders, seasonally adjusted): $228.2 billion (-4.6% vs. October 2016).
FHFA House Price Index (October 2016, Purchase-Only Index, seasonally adjusted): +0.4% vs. September 2016, +6.2% vs. October 2015.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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