Deller's two cents: Well my forecast on the earnings reports that came out this week was mixed. Some companies did well, some are still struggling. The Vanguard folks use the word "tepid" in describing the recover. I am a bit more optimistic: do I dare ask is the recovery picking up a little speed? Well, going from sitting on one's rear to crawling is picking up a little speed, right?
Economic Week in Review: Recovery on track, but pace remains tepid
October 29, 2010
The economy's continued growth is good news, but the pace of that growth remains unimpressive. While gross domestic product rose for the fifth straight quarter, this wasn't enough to lower the unemployment rate. The housing market is recovering, but still in a rut. Likewise, consumer confidence and durable-goods orders were both up, but nobody was overdosing on optimism. For the week, the S&P 500 Index remained unchanged at 1,183 (for a year-to-date total return-including price change plus dividends-of about 7.8%). The yield of the 10-year U.S. Treasury note rose 1 basis point to 2.60% (for a year-to-date decrease of 125 basis points).
Gross domestic product rises
U.S. gross domestic product (GDP) increased an estimated 2% (annualized) in the third quarter, faster than the 1.7% advance in the second quarter and in line with expectations. The rate of economic growth as measured by GDP-the value of all goods and services produced by labor and property in the United States-has now expanded for five straight quarters. Compared to last year, GDP increased 3.1% in the third quarter, the largest yearly rise since the fourth quarter of 2006.
"The headline number fell well in line with consensus expectations; however, the contributions to GDP were a little bit of a disappointing surprise," said Vanguard economist Roger Aliaga-Díaz. "Inventories and federal government spending, two temporary factors, are still major contributors. Consumer spending picked up but, as was the case in the second quarter, it seems to be mostly on imported goods. Business capital spending was not as strong as expected, and its contribution was mostly offset by weak residential investment."
Housing market continues rebound
Sales of both existing and new homes rose more than expected in September, although the pace remains sluggish historically and compared to last year's. Existing-home sales increased 10% for the month, and new-home sales gained 6.6%, evidence a recovery in the housing market is underway. The existing-home gain can be partially explained by dropping prices; the median existing-home price fell 2.4% on a year-ago basis, to $171,700. However, the median new-home price rose 1.5% to $223,800, as limited inventories prevented prices from falling. Existing-home sales rose in all four regions of the country, with only the West failing to notch a double-digit increase. New-home sales were also weakest in the West, which was the only region without a gain.
Uptick in consumer confidence
The Conference Board's index of consumer confidence rose 1.6 points in October to 50.2. Despite the gain, the number is still low by historical standards. Expectations advanced 2.3 points to 67.8, while the present situation component moved 0.6 points to 23.9. Assessments of business conditions and the stock market were positive drivers, but the outlook for labor market conditions was negative as the job hunt remains challenging for many. Falling home prices also contributed to the decline.
Durable-goods orders increase
Orders for manufactured durable goods-products designed to last three years or more-advanced 3.3% in September. The gain, which was more than expected, is the second in the last three months and follows August's 1.3% drop. Still, the levels are well below 2007's peak. Transportation equipment drove the increase; excluding this segment, new orders fell 0.8%. Orders for core capital goods-which exclude defense and aircraft orders-dropped 0.6%. Shipments, both including and excluding transportation, declined 0.4%. Inventories rose for the ninth straight month, while unfilled orders were up for the sixth month in a row.
Compensation costs grow slowly
Employers' costs to compensate workers increased 0.4% in the third quarter, slightly less than expected. Much of the growth came from a 0.6% rise in benefits, which account for about 30% of the index. It was the third straight quarter overall growth was triggered by the cost of benefits, namely health care. Wages and salary, the larger of the two components, were up 0.3%. Compared to a year ago, total compensation growth remained at 1.9%.
The economic week ahead
Monday kicks off a busy week for economic news with reports on personal income, construction spending, and the ISM manufacturing index. The Federal Open Market Committee's decision on interest rates is scheduled for Wednesday, along with releases on factory orders and the ISM nonmanufacturing index. The productivity and costs report comes out Thursday, while Friday brings news on the employment situation and consumer credit.
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Steven C. Deller
Professor and Community Development Economist Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
