September 30, 2011
The U.S. economy grew slightly more than expected in the second quarter, tempering some fears of another recession. But the economy remains weak. The housing market continues to struggle, and although initial jobless claims fell significantly last week, the number of unemployed remains high. For the week ended September 30, the S&P 500 Index fell 0.4% to 1,131 (for a year-to-date total return-including price change plus dividends-of about -8.7%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 1.92% (for a year-to-date decrease of 138 basis points).
GDP up slightly
The U.S. economy grew at an annual rate of 1.3% in the second quarter, an upward revision from the previous gross domestic product (GDP) estimate of 1.0%. The number was slightly better than expected, though far below the rate of growth necessary to reduce the unemployment rolls. GDP growth was revised upward mainly because of a slight increase in consumer spending and exports. Consumer spending rose across most sectors with the exception of autos. Business spending also was stronger, as more companies invested in new buildings, equipment, and software. Exports rose, but the impact on growth was limited by a rise in imports. (Get a closer look at GDP and its components.)
New-home sales decline
New-home sales hit a six-month low in August, falling 2.3% to an annualized rate of 295,000 units. Several factors, including renewed fears of a double-dip recession and Hurricane Irene, kept buyers at bay.
Despite recent dismal numbers, new-home sales are up 6.1% compared with a year ago. However, when compared with July 2005-the peak of the housing bubble-sales of new homes are still down 80%.
Consumer confidence remains shaken
The Conference Board's index of consumer confidence rose to 45.4 in September, up only 0.2 points from August's exceptionally low reading of 45.2 (revised up from the 44.5 reading originally reported for the month). The expectations component of the index (which measures consumer sentiments about the economic situation in the next six months) jumped 1.6 points in September, but still remains weak. The present situation component of the index dropped 1.8 points for the month.
"The pessimism that shrouded consumers last month has spilled over into September. Consumer expectations, which had plummeted in August, posted a marginal gain," said Lynn Franco, director of The Conference Board Consumer Research Center. "However, consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending. In addition, consumers' assessment of current conditions declined for the fifth consecutive month, a sign that the economic environment remains weak."
Durable-goods orders drop, but only slightly
Durable-goods orders fell less than expected in August. Orders were down 0.1% for the month, giving back only a very small portion of July's 4.1% gain. New orders for core capital goods-widely considered a key gauge of capital spending-jumped 1.1% for the month, while shipments of these goods rose 2.8%.
New aircraft, both defensive and nondefensive, were in strong demand for the second month in a row. Auto orders dropped 8.5% for the month, after a spike in July.
Personal income retreats
Personal income fell 0.1% in August for the first time since October 2009, though spending edged higher. The personal savings rate slipped to 4.5% in August-the slowest level since December 2009. Consumers spent most of their money in August on nondurable goods and services. Consumer prices rose 0.2%, but excluding food and energy, were only up 0.1%.
The economic week ahead
Next week will be a busy one for those following economic reports. The week's big news will come on Friday, when the Labor Department releases its September report on employment. Other news will include the latest on construction spending and the ISM manufacturing index (Monday), factory orders (Tuesday), the ISM nonmanufacturing index (Wednesday), and consumer spending (Friday).
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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 still have most of it left."
Seasick Steve
