The Unexpected Strength of Third Quarter GDP Growth, Which was Revised up to 3.9% Annualized Rate from 3.5%, is Further Evidence the Economy is on the Verge of Finally Reaching Escape Momentum.

The unexpected strength of third quarter GDP growth, which was revised up to 3.9% annualized rate from 3.5%, is further evidence the economy is on the verge of finally reaching escape momentum.  Consensus had expected a nominal downward revision to 3.3%.  The past six months the economy has grown at its fastest pace in a decade.

Personal consumptions and business investment were both revised considerably higher thus suggesting the decline in oil prices may be benefitting the consumer and corporations are finally spending some of their massive cash hordes.

The data bodes well for a “three handle” for fourth quarter growth.

Some will comment about the unexpected decline in November’s consumer confidence and its implication to holiday shopping, however the data does not square well with University of Michigan sentiment survey, the drop in gas prices and the steady decline in weekly jobless claims.  A strong argument can be made yesterday’s confidence numbers is a one off event and will probably be revised higher.

It is widely accepted today’s growth does not feel like the strongest six month growth rate in 10- years.  I will argue this is the result of lack of stated inflationary pressures.  Real and nominal GDP are almost the same.  Typically nominal GDP is 275-300 basis points higher than real GDP thus giving the false impression that growth is greater than it really is.

Real GDP data is reported after subtracting the impact of inflation.

There was little market response with most attention focused upon the impending East coast snow storm and Thanksgiving holiday.

Speaking of Thanksgiving, there is so much we can be thankful for.  Yes there are injustices, but focus upon the positives not the negatives.  We are still living in the best country in the world.

Last night the foreign markets were mixed.  London was up 0.14%, Paris down 0.05% and Frankfurt up 0.55%.  Japan was down 0.14% and Hang Seng up 1.12%.

The Dow should open quiet ahead of reports on spending, home sales and durable good orders but trading is expected to be muted given the upcoming holiday and poor east coast weather.  The 10-year is unchanged at a 2.26% yield.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.
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