Wednesday, November 29, 2006

Economic winds blow both ways

Lots of contradicting newson the economy this week.

  • The Commerce Department said GDP increased at a 2.2% annual rate from July to September, in its first revision of third-quarter GDP estimates. That's good growth. The government initially estimated growth at 1.6%. Wall Street expected that figure to be revised to 1.8% growth.
  • Third-quarter inflation estimates were lowered. The price index for personal consumption increased 2.4%, lower than the previously estimated 2.5% and below the second quarter's 4.0% rise. The PCE price gauge excluding food and energy -- closely watched by the Fed -- increased 2.2%, lower than the previously estimated 2.3% climb and below the second quarter's 2.7% rise. (Together with the last item, these two were mostly responsible for todays market upswing.)
  • Wednesday, the Commerce Department said median price of a new home sold in October was $248,500, up 1.9% from the same month a year ago. Meanwhile, the National Association of Realtors said that the median price of a home sold in October was $221,000, the same as in September, but down 3.5 percent from October 2005. That's right, the commerce department says housing is up 1.9% and the NEAR says its down 3.5% (biggest drop ever). I would guess the commerce department data is better, actually, based on the way the data is collected. I say that even though rising housing prices conflict with my expectations.
  • Both sources of data agree home sales (number of houses sold) are down 20-35%
  • The Fed's beige-book survey on regional economic activity showed that U.S. economic growth was mostly moderate in the early part of the fourth quarter, as consumer spending grew and labor markets remained tight despite further cooling of the housing market and slower auto sales. The economy doesn't need inflation to make it roll over into a slowdown, this is worth watching.
So far this week has been turbulent and sentiment-driven, as I predicted Sunday :)

Invest Well,

FW
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