Economic Perspective

• U.S. economic growth accelerated in the third quarter, rising to 2% from 1.3%, according to the Bureau of Labor Statistics’ initial estimate. The increase was driven in part by a 14.4% jump in construction spending, consumer spending that rose 2%, and a 3.7% increase in federal spending, primarily on the military, while capital spending by businesses fell 1.3%.
• The unemployment rate fell in September to 7.8%, its lowest level since January 2009. The Bureau of Labor Statistics said the addition of 114,000 jobs to the nation’s payrolls cut the unemployment rate by 0.3%, the biggest monthly decline since January of last year.
• The housing market continued to show encouraging signs that the worst might be over. A 5.7% jump in sales of new homes put them more than 27% higher than this time last year, according to the Commerce Department, though the National Association of Realtors® said the sales of existing homes were down 1.7% for the month. Housing starts shot up 15%–their biggest increase since July 2008 and the third straight month of gains–and building permits were more than 45% higher than a year earlier. Meanwhile, home prices measured by the S&P/Case-Shiller 20-city index continued to rise, hitting their highest level since September 2010, and according to RealtyTrac®, mortgage foreclosures were at a five-year low.
• Gas prices contributed to a 0.6% jump in consumer inflation and a 1.1% rise in wholesale prices, according to the Bureau of Labor Statistics. That put the annual consumer inflation rate at 2%, slightly higher than in August, and the annual wholesale rate at 2.1%.
• In China, economic growth slowed for the seventh quarter in a row, falling from 7.6% to 7.4%. Meanwhile, the International Monetary Fund cut its forecast for global growth to 3.3% this year and 3.6% next year, calling the risk of a serious global slowdown “alarmingly high.” In the eurozone, unemployment hit a new record of 11.6%.
• The Commerce Department said retail sales jumped 1.1% for the month, while the 0.8% increase in consumer spending was the strongest since February.
• Manufacturing data for the month was mixed. Strong orders for commercial aircraft helped durable goods orders soar almost 10% (their biggest increase in more than two years, according to the Commerce Department). The Fed said industrial production also was up 0.6% for the month, and the Institute for Supply Management’s index turned positive for the first time in four months. The Philly Fed survey of manufacturing activity saw its first increase in five months, but the Empire State survey continued to show contraction.

Eye on the Month Ahead

As the country continues to assess the economic impact of Sandy’s devastation, Friday’s unemployment report–the last before the November 6 elections–will receive even more attention than usual. Post-election financial markets are likely to begin assessing how the results might affect the January 1 fiscal cliff and renewed debate over the debt ceiling.

Key dates and data releases: business productivity/costs, U.S. manufacturing (11/1); unemployment/payrolls, factory orders (11/2); U.S. services sector (11/5); balance of trade (11/8); wholesale inflation, retail sales, Federal Open Market Committee minutes (11/14); consumer inflation, Empire State/Philly Fed manufacturing surveys (11/15); industrial production, international capital flows, options expiration (11/16); home resales (11/19); housing starts (11/20); leading economic indicators (11/21); durable goods orders, home prices (11/27); new home sales, Fed “beige book” report (11/28); 2nd estimate of Q3 gross domestic product (11/29); personal income/outlays (11/30).