Hello, my friends!
Unsurprisingly, the holiday-shortened week provided us with less economic news than usual, but the updates we did receive were still plenty relevant.
In terms of data, perhaps the biggest story of the week was the Commerce Department’s announcement on Tuesday that gross domestic product (GDP) surged by a much larger-than-expected 4.3% annualized rate in the third quarter. Economists polled by Dow Jones had expected the government’s initial estimate of economic growth last quarter to come in at a less robust 3.2%. In the second quarter, GDP grew by 3.8%.
While increases in exports and government spending helped boost third quarter activity, it was a big jump in consumer spending that accounted for most of the improvement. Roughly 70% of GDP is attributable to spending by consumers, and that spending surged by 3.5% in Q3 after climbing 2.5% in Q2.
Notably, this most recent quarterly GDP reading is the highest in two years. But it’s also the first post-shutdown GDP report and that fact, combined with inflation’s continued persistence as well as signs of weakening consumer confidence (more on that shortly), has some wondering if the economy is really as strong as last quarter’s figure suggests.
“We don’t know if everything is as good as the third-quarter number suggests,” said Barclays economist Jonathan Millar, “but it is sending the message that the economy is hanging in there.”
The Commerce Department’s second estimate of Q3 GDP is scheduled for release on January 22.
Volatile Transportation Sector Weighs on October Durable Goods Orders
Elsewhere this week, the Census Bureau reported on Tuesday that orders for durable goods fell in October by a larger-than-expected 2.2% in October after rising 0.7% in September and 3% in August. Economists did expect orders to decline in October, but by a more modest 1.5%.
However, a closer look at the data points to the possibility that underlying business activity in October was stronger than the headline durable goods number suggests. Excluding the volatility-prone transportation sector, which dropped 6.5% in October on a collapse in orders for both civilian and military aircraft, durable goods orders actually rose 0.2%.
As for the positive activity, much of it was attributable to improvements in computers and electronic products (+1.0%), machinery (+0.8%) and fabricated metal products (+0.5%), while electrical equipment and primary metals saw orders decline by 1.5% and 0.7%, respectively.
Some additional good news from the October report was found in the growth number for core shipments (excludes transportation), which climbed another 0.7% after rising 1.2% in September. Core shipments are seen as a direct reflection of business investment and manufacturing health and serve as a critical input for the calculation of GDP.
Worried Americans Drag Down Consumer Sentiment Number for Fifth Straight Month
On Tuesday, The Conference Board reported that its widely followed Consumer Confidence Index declined for the fifth straight month in December, sinking nearly four points from November’s reading to land at 89.1. Heading into the week, economists were expecting the index come in at a more resilient 91.7.
“Despite an upward revision in November related to the end of the shutdown, consumer confidence fell again in December and remained well below this year’s January peak,” said Dana M. Peterson, chief economist at The Conference Board.
The Expectations Index…a component metric that gauges consumers’ outlook for the economy six months down the road…stayed relatively steady this month. Notably, however, its reading of 70.7 means this closely watched component metric now has come in below the key threshold of 80 for 11 consecutive months. That’s significant because, according to the board, Expectations Index numbers below 80 signal forthcoming recession.
“Consumers’ write-in responses on factors affecting the economy continued to be led by references to prices and inflation, tariffs and trade, and politics,” Peterson noted. “However, December saw increases in mentions of immigration, war, and topics related to personal finances—including interest rates, taxes and income, banks, and insurance.”
This month’s index reading is one reason some analysts are suspicious of just how comprehensive the economic robustness conveyed by the Q3 GDP figure really is. For his part, ING chief international economist James Knightley declared this week that economic growth remains “concentrated among higher-income households and tech-led investment, while broader consumer confidence remains under pressure.”
Factory Activity Continues to Flounder in Mid-Atlantic Region
Finally this week, a key regional measure of U.S. manufacturing activity showed some improvement this month even as it remained squarely in contraction territory…suggesting that while conditions may be getting better, they have a ways to go before actually looking good.
On Tuesday, the Federal Reserve Bank of Richmond reported that the composite index generated by the results of its Fifth District Survey of Manufacturing Activity increased to a reading of -7 from -15 in November. The the survey assesses factory activity in the Fifth Federal Reserve District, which encompasses the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia.
Like the overall index, each of the measure’s component indexes improved this month but not enough to lift any of them into positive, or expansion, territory. The shipments index increased a few points to -11 from -14, new orders surged 14 points to -8 from -22, and the employment index increased to -1 from -7.
That’s all for now; have a wonderful weekend!This post is created and published for general information purposes only. The Gold Strategist blog disclaims responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.
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