US Growth Streak Best Since 1986, Inflation Contained, Confidence Remains Weaker

- Advance 3Q GDP rose 3.8% versus estimates of a 3.6% increase and a 3.3% gain in 2Q.
- Advance 3Q GDP Price Index rose 3.1% versus estimates of a 2.8% increase and a 2.6% increase in 2Q.
- Advance 3Q Personal Consumption rose 3.9% versus estimates of a 3.3% increase and a 3.4% gain in 2Q.
- 3Q Employment Cost Index rose .8% versus estimates of a .8% gain and a .7% increase in 2Q.
- Final Univ. of Mich. Consumer Confidence for October fell to 74.2 versus estimates of 76.0 and a prior estimate of 75.4.

BOTTOM LINE: US economic growth quickened to a 3.8% annual rate in the third quarter, faster than economists predicted and evidence the economy was able to withstand higher energy costs, Bloomberg reported. Companies pared inventories for the second quarter in a row which will likely boost growth in 4Q as companies rebuild inventories. US growth has exceeded 3% for 10 straight quarters, the best streak since the 13 quarters that ended in March 1986 and the best performance among the G-7, which includes Japan, Germany, the UK, France Italy and Canada. Consumer spending rose 3.9% last quarter, the most this year and higher than the 20-year average of 3.4%. The core personal consumption expenditures index, Greenspan’s favorite inflation gauge, rose at a 1.3% annual rate, the slowest since the second quarter of 2003. The trade deficit narrowed to $611.8 billion from $614.2 billion in 2Q, adding .08 percentage point to 3Q GDP after adding 1.1 percentage points in 2Q. This is the first time trade has added to growth in back-to-back quarters since the last half of 1995. I continue to believe growth slowed to below average levels after the hurricanes struck in September and that a bounce back to average growth will occur into year-end.

US consumer confidence fell below estimates this month as energy costs remained elevated, Bloomberg reported. The average price of gas is 38% higher than this time last year. The current conditions component of the index fell to 91.2 from 98.1 in September. Since reaching a record in September, the average price of gas has fallen five of the past eight weeks and was $2.60/gallon in the week ended Oct. 24. I continue to anticipate a sharp rebound in consumer sentiment over the next few months.