Wednesday, November 29, 2006

3Q GDP Revised Higher, Inflation Reading Revised Lower, New Home Sales Decline, New Home Prices Rise

- Preliminary 3Q GDP rose 2.2% versus estimates of a 1.8% gain and prior estimates of a 1.6% increase.
- Preliminary 3Q GDP Price Index rose 1.8% versus estimates of a 1.8% gain and prior estimates of a 1.8% increase.
- Preliminary 3Q Personal Consumption rose 2.9% versus estimates of a 2.8% increase and prior estimates of a 3.1% gain.
- Preliminary 3Q Core PCE rose 2.2% versus estimates of a 2.3% gain and prior estimates of a 2.3% increase.
- New Home Sales for October fell to 1004K versus estimates of 1049K and a downwardly revised 1037K in September.
BOTTOM LINE: The economy expanded at a revised 2.2% annual rate from July through September, faster than forecast, Bloomberg said. The core PCE Index, the Fed’s favorite inflation gauge, rose 2.2% versus a 2.7% increase in the second quarter. Consumer spending, which provides about 70% of US economic growth, rose 2.9% versus a 2.6% increase in the second quarter. Residential construction fell 18% during 3Q. Business fixed investment, which includes commercial building and spending on equipment and software, rose at a 10% pace during 3Q. 3Q Nominal GDP rose 4.0%. I continue to believe 4Q GDP growth will exceed estimates of 2.5% as the deflator subtracts less than most expect.

Sales of new homes in the US fell more than forecast in October, Bloomberg reported. The supply of unsold homes at the current sales pace rose to 7 months’ worth. The median price of a new home rose 1.9% to $248,500 from 243,900 a year earlier. Sales fell 39% in the Northeast, 5.6% in the Mid-west and 1.7% in the South. They rose 3.2% in the West. I continue to expect housing to stabilize at relatively high levels over the coming months, which combined with subsiding auto production cutbacks, should help US economic growth accelerate back to around average levels over the intermediate-term.

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