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…
Third-Quarter GDP (First Estimate)
Third-quarter GDP came in at an inflation-adjusted rate of 3%. This was mainly as a result of rising inventories boosted by the recent hurricanes. The hurricanes caused transportation snags and backups in the supply chain, which, in turn, caused inventories to rise $35.8 billion in the quarter. This contributed 0.73 points to GDP.
Residential investments fell 6%, while nonresidential investments rose 3.9%. Net exports also came in positive, even though they narrowed nearly $20 billion to a $595.5 billion deficit.
Personal consumption expenditures came in at 2.4%, which was as expected. At 8.3%, durable spending was extremely strong, reflecting demand for vehicle replacements, again, as a result of the hurricanes. Falling 6.0%, residential investments proved a real weakness.
The rise in inventories would be concerning if demand were softening. However, demand remains steady. Therefore, inventory overhang will likely draw down this quarter. Especially since the core of this Q3 report was so solid. All in all, we have solid momentum going into Q4.
New Home Sales
Unless last month’s surge in new home sales is either proven to be an outlier or is revised, the new home market might be sharply accelerating at year’s end. In fact, September saw the largest percent gain in new home sales in almost 28 years. It surged 18.9% to a 667,000 annualized rate. August showed a slight revision as well, now at 561,000 rather than 560,000.
In the South, hurricanes appeared to lift sales, which rose 26% to a rate of 405,000. Sales in all other regions also rose 33% to 48,000 in the Northeast, 11% to 73,000 in the Midwest and 2.9% to 141,000 in the West.
This all makes inventories look a little tight. However, the number of new homes on the market did remain unchanged at 279,000. Relative to sales, however, supply fell a full month to only 5 months. Median prices rose 5.2% to $319,700, while the year-on-year gain is only at 1.6%.
Durable Goods Orders
Based on capital goods orders, business investment picked up sharply in September. Durable goods orders were up 2.2%.
Commercial aircraft was up 64%. This follows August’s 52% gain. Giving us two straight months of solid reporting from this sector.
The most important strength was in core capital goods (nondefense ex-aircraft). This went up 1.3% for the third month in a row. Vehicles, however, proved a soft spot, while unfilled orders remained flat. Total orders are up a yearly 8.3%. Ex-transportation is up 7.5%, and core capital goods are up 7.8%. These year-on-year rates are the highest we’ve seen since before 2014’s oil price collapse.
That’s all I have for you this week. I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.
Have a great weekend,