Enjoy the Holidays! Deller
Economic Week in Review: Time for some holiday cheer
December 23, 2010
With the holidays upon us, consumers are increasingly jolly with their spending, as evidenced by personal income reports. Third-quarter real GDP was revised upward again to an annualized increase of 2.6%, even as the housing industry continued to struggle and durable-goods orders fell. For the holiday-shortened week ended December 23, the S&P 500 Index rose 1.0% to 1,257 (for a year-to-date total return of about 14.9%). The yield of the 10-year U.S. Treasury note rose 8 basis points to 3.41% (for a year-to-date decrease of 44 basis points).
Picking up the pace
The economy grew slightly more in the third quarter than previously reported as real GDP rose at an annual rate of 2.6%, short of estimates. This adjustment was because of a combination of slightly lower consumer spending and an increase in manufacturing inventories, an indication that business is increasing production to meet future consumer demand. (Inventories rose by $121.4 billion, nearly the twice the increase in the second quarter.) Analysts believe that a recent uptick in consumer spending along with the recent tax cuts approved by Congress may further boost growth in the months ahead.
Consumers spend more, save less
Spending growth by consumers eclipsed income growth for the fifth consecutive month in November. Personal income was up 0.3% in November a bit better than expected, while spending rose 0.4%-slightly less than forecast. Meanwhile, Americans' saving rate in November dipped to 5.3%, its lowest level since March.
Home sales grow less than expected
The troubled housing market continued to suffer in November, with sales lower than expected. Existing-home sales increased 5.6%, to an annualized 4.68 million units, well below expectations. Despite the increase, sales were 27.9% below prior-year levels and below the 5.26 million in June of this year, when a homebuyer tax credit distorted expected sales results.
The median price of an existing home increased slightly from the year-ago median price of $170,000, to $170,600. However, a looming supply of potential bank repossessions and foreclosures could squelch prices again in the months ahead. Distressed properties accounted for about a third of November sales. New-home sales increased by a lower-than-expected 5.5%, to an annualized 290,000 units in November, barely above their August lows. New-home sales were down over the past year, with the sharpest plunge occurring in Midwest and the Northeast.
Fewer durable-goods orders
Orders for durable goods dropped 1.3% in November, a larger drop than had been projected. The decline was mainly because of lower orders for transportation equipment, especially for commercial airlines. New orders for the key core capital goods figure, which excludes the volatile transportation category, actually climbed 2.4%.
The economic week ahead
The final week of the year includes several key reports: The Conference Board's index of consumer confidence (Tuesday) and the unemployment rate and nonfarm payrolls (Thursday).
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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
