2Q GDP Healthy, Inflation Below-Average, Initial Jobless Claims Fall, New Home Sale Decline

- Final 2Q GDP rose 3.8% versus estimates of a 3.8% gain and a prior estimate of a 4.0% increase.

- Final 2Q Personal Consumption rose 1.4% versus estimates of a 1.4% increase and a prior estimate of a 1.4% gain.

- Final 2Q GDP Price Index rose 2.6% versus estimates of a 2.7% gain and a prior estimate of a 2.7% gain.

- Final 2Q PCE Core rose 1.4% versus estimates of a 1.3% gain and prior estimates of a 1.3% increase.

- Initial Jobless Claims fell to 298K versus estimates of 316K and 313K the prior week.

- Continuing Claims rose to 2551K versus estimates of 2550K and 2540K prior.

- New Home Sales for August fell to 795K versus estimates of 825K and 867K in July.

BOTTOM LINE: The US economy grew in the second quarter at the fastest pace in more than a year, Bloomberg reported. The Fed’s preferred inflation gauge, the core pce, rose at a 1.4% annual rate in the second quarter and was up 2% year-over-year. Americans’ wages are rising at just about twice this rate. The smaller trade deficit during 2Q added 1.3 percentage points to growth, the most since 1996. Residential home construction fell at a 12% annual pace last quarter and subtracted .6 percentage points from growth. However, non-residential construction jumped 26% last quarter, the most since 1981. I continue to believe US economic growth will come in modestly below trend this quarter and next, rising around 2-2.5%. Lower inflation, booming exports, inventory rebuilding and a resilient consumer should continue to more than offset the drag from housing.

The number of US workers filing first-time claims for unemployment benefits unexpectedly fell to a four-month low, Bloomberg said. The four-week moving-average of claims dropped 3.1% to 311,500 from 321,250. “Labor market conditions overall are not deteriorating and remain pretty steady,” said Julia Coronado, senior US economist at Barclays Capital. The unemployment rate among those eligible to collect jobless benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating significant unit labor cost increases.

Sales of new homes in the US dropped more than forecast in August as the credit turmoil peaked, Bloomberg reported. The inventory of unsold homes rose to 8.2 months’ worth at the current sales pace. Sales fell 21% in the West and 15% in the South. However, sales soared 42% in the Northeast and jumped 21% in the Midwest. I still think home sales are in the process of stabilizing at lower, but relatively high by historic standards, levels. I expect home sales to bounce back a bit over the next couple of months. Home construction will remain weak over the intermediate-term as homebuilders pare down inventories.