It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
U.S. Economy Grew 1.5% Last Quarter
For the third quarter, U.S. GDP growth is estimated to have slowed down, increasing at a 1.5% annual pace. This is down dramatically from the 3.9% annual pace in the second quarter. U.S. consumer spending grew at a 3.2% annual pace, while business spending decelerated sharply as inventories plunged to only $56.8 billion. A widening trade deficit was also a drag on overall GDP growth in the third quarter. Given the slowing business spending and a widening trade deficit, third-quarter GDP may be revised even lower. So the pace of the U.S. economy is now entirely in the hands of the U.S. consumer.
Sales of New Homes Slow
The Commerce Department reported that new home sales slipped to the slowest pace in 10 months during September. New home sales fell 11% last month to a seasonally adjusted annual rate of 468,000, which is the lowest level since November 2014. So far this year, new home sales are up 17.6%. While the U.S. housing market is recovering, slowing global growth, the strong U.S. dollar and pullback in the job market recovery impacted new home sales last month. Inventories are also high, as the Commerce Department reported a 5.8 months supply of new homes. So it appears that home sales have peaked near-term, possibly due to affordability reasons.
Durable Goods Orders Slip
New orders for durable goods slipped to a seasonally adjusted 1.2% in September, which was the second-straight decline in durable goods orders. August durable goods orders were revised to a 3% decline, down from the previously estimated 2.3% drop. Vehicle orders rose 1.8% in September, while commercial aircraft orders declined 35.7%. Business investment also fell last month, declining 0.3%. It is now down 8% in the past 12 months. Weak commodity prices, slowing global growth and the strong U.S. dollar were the main culprits for the slowdown in durable goods orders again this month. Two-consecutive months of weakening durable goods orders could be a sign that U.S. economic growth is slowing, and until business investment improves, durable goods orders will likely remain soft.
Consumer Confidence Ebbs
The Conference Board’s Consumer Confidence Index dropped to 97.6 in October, well below economists’ estimates for a 102.1 reading. That’s also down sharply from the revised 102.6 reading in September. The present situation component (which measures current conditions) also slipped, falling to 112.1 in October, down from 120.3 in September. There is no doubt that the recent wave of layoffs announced from many big companies is now weighing down overall consumer confidence. The U.S. consumer remains the primary catalyst of GDP growth, so when the consumer gets moody, not only may holiday sales be lower-than-expected, but fourth-quarter GDP growth could also slow.
The University of Michigan’s Consumer Sentiment Index showed an October reading of 90, which was up from September’s 87.2 reading but missed economists’ estimates for a reading of 92.5. Slower economic growth, volatile stock markets and turmoil overseas continued to weigh on consumers’ confidence in October.
Layoff Activity Ticks Up
For the week ending October 24, initial claims for unemployment increased by 1,000 to a seasonally adjusted 260,000. The four-week moving average slipped by 4,000 to 259,250. Jobless claims have now remained below the 300,000 threshold for 34-straight weeks, which shows that layoffs have tapered off and the jobs market is relatively healthy.
Personal Income Gains Modestly
According to the Commerce Department, personal income increased 0.1% in September, below economists’ estimates for a 0.2% rise. Personal income for August remained unchanged at a 0.4% increase. September’s personal income gain was the smallest rise in eight months, which means U.S. consumer spending may be cooling off.
Have a great weekend,