GDP – Repeat Performance of Stellar Third Quarter Unlikely
Revisions of GDP data show that the U.S economy galloped ahead at a 4.9% pace in the third quarter, a whole percentage point higher than the advance estimate. By contrast, the economy is predicted to grow at a noticeably slow pace in the fourth quarter of 2007 (+1.3%) and the first quarter of 2008 (+0.6%). Net exports should continue to provide the lift to the headline number, residential investment expenditures are most likely to make a negative contribution, while consumer spending and business expenditures are projected to post small gains, with consumer spending ranking at the bottom. The FOMC has indicated that weak economic conditions in the fourth quarter and early part of 2008 are incorporated in their forecast. Chairman Bernanke’s comments this evening should help to sort out the opposing opinions presented by Governor Kohn and Fed Presidents Evans and Plosser.
In the third quarter, significant upward revisions to net exports (-$533.4 billion vs. -$546.2 billion in advance report) and inventories ($32.9 billion vs. $15.7 billion in advance report) and small upward revisions of government spending and non-residential investment expenditures (+9.4% vs. +7.9% in advance report) resulted in a large net upward revision of the GDP growth in the third quarter. Consumer spending was revised down to a 2.7% annualized increase in the third quarter, slightly lower than the 3.0% gain seen in the advance estimate.
The $19.3 billion drop in corporate profits in the third quarter after a $94.7 billion increase in the second quarter reflects a loss of $41.2 billion in domestic industries and a gain of $21.9 billion from the rest of the world. On a year-to-year basis, domestic industries have posted losses in two out of the three quarters of 2007.
The financial sector (-5.6%) and the non-financial sector (-1.6%) both posted losses in the third quarter. On a year-to-year basis, profits of the financial sector have barely remained positive in the first three quarters of the year. The non-financial sector has recorded losses for four straight quarters.
New Homes Sales – Headline Is Misleading, Details Reveal More
Sales of new single-family homes rose 1.7% to an annual rate of 728,000 in October following a revised 0.1% drop in September which was previously reported as a 4.8% increase in single-family home sales. The level of new single-family home sales in September was revised to 716,000 from the previous estimate of 770,000. This large downward revision in September reduces the importance of the 1.7% increase in sales of new-single-family homes in October. Sales of new single-family homes are down 47.6% from their peak in July 2005.
Total sales of single-family homes, new and existing, have dropped 33.0% to an annual rate of 5.098 million from their peak of 7.619 million in July 2005.
The median price of a new single-family home dropped 8.6% in October to $217,800, putting the year-to-year decline at 13.6%, the largest drop since July 1970.
There was an 8.5-month supply of unsold new single-family homes in the market during October, down from a 9.0-month mark in September.
Seasonal Factors Partly Distort Jobless Claims Reading
Initial jobless claims rose 23,000 to 352,000 during the week ended November 24. The early-Thanksgiving and shortened week may have exaggerated the reading. Nevertheless, the upward trend of jobless claims is an important indication of soft labor market conditions. Continuing claims, which lag initial claims by one week, moved up 112,000 to 2.665 million and the insured unemployment edged up one notch to 2.0%.
