Tuesday, November 24, 2009

GDP Up 2.8%: Case Shiller Improves

I'm still traveling. Posting will be sporadic today and tomorrow. I think all of us will be taking Thursday and Friday off.

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the
Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent (see "Revisions" on page 3).

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private inventory investment, in exports, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.

A few points.

1.) Durable expenditures increased 20.1%. This is obviously the result of cash for clunkers. However, non-durable expenditures increased 1.7% and service expenditures increased 1%. In other words, we saw good increases in all the components of PCEs.

2.) Auto related activity added 1.45 to overall growth. This will of course be a lightening rod where people will argue this wasn't real growth because of the C4C program. To that I would respond with the following: at the end of every recession we typically see government incentives to increase activity. If memory serves, at the end of the last recession we saw an increase in the depreciation deduction as a way to increase business investment. In addition, government spending typically accounts for about 20% of overall economic growth. If you're going to jump on the C4C number, fine. But please revise all economic numbers to take out all government programs at all times simply to be consistent. Finally, I've noticed trend where people who argued for the stimulus are now arguing against the latest GDP number. So -- make up your mind please.

3.) Residential investment increased 19.5%. That's a good sign. However, remember the housing starts decreased last month at a 10% clip.

4.) Exports increased 17% and imports increased 20%. While this is an overall negative for the report (this combination subtracts from growth) it does indicate that we are growing.

So -- I'm still pleased.

The Case Shiller index is also showing better numbers. First, here is the chart that shows the year over year percentage change in prices:

Notice the rate of decline continues to decrease. In other words, we're moving in the right direction.

In addition:

About half of the large cities showed improvement. Also note the rate of decline in those cities that showed a decline was low.

Consumer confidence was flat:

Conference Board data show no significant improvement in consumer confidence during November. The headline index rose slightly to 49.5, still disappointing compared to August's 54.5 level that raised expectations at the time of significant second-half improvement. A key to those expectations was a rise in the expectations index toward 80, a level that right now seems out of reach with the index currently at 68.5. The present situation index remains near record lows, down 1 tenth to 21.0. The present assessment of the jobs market eroded slightly, with slightly more saying jobs are hard to get, now at 49.8 percent, and slightly fewer saying jobs are plentiful, at 3.2 percent. Inflation expectations are benign, unchanged for a third straight month. Today's report points to no improvement in the labor market and will not boost expectations for holiday retail sales.

Here is the chart:

Confidence has been moving sideways since April. This is largely the result of the jobs market. When unemployment continues to increase consumer's aren't going to be happy. The good news in this number is it hasn't crashed. The had news is it hasn't gone higher. Considering the unemployment rate this is probably about as good as we can expect.

So, the economy is still growing, the housing market is still improving but consumer's are still sanguine.