Economic Insights - December 2017

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The U.S. economy is now accelerating.  With less than one month to go in the fourth quarter, monthly data releases show real GDP growing at an annual rate of over 3 percent.  If that holds, it would make for three consecutive quarters of growth at an annual rate of over 3 percent.  Believe it or not, the last time that happened was 2004!

Retail sales, industrial production, and housing starts all came in substantially better than expected for October.  And while retail sales grew “just” 0.2 percent in October, that came on the back of a 1.9 percent surge in September.  Overall sales, and those excluding volatile components like autos, gas and building materials, all signal a robust consumer economy.

The headline U3 unemployment rate is at a 17-year low, while consumer confidence is at 17-year highs.  As of this writing, stocks have reached another all-time high on the S&P500, DJIA, and NASDAQ.  

Meanwhile factory output surged 1.3 percent in October, tying the second highest monthly gain since 2010.  Production at factories was up 2.5 percent from a year ago, and accelerating.  By contrast, factory production was down 0.1 percent in the year ending October 2016 and unchanged in the year ending October 2015.  Importantly, the current revival is not due to the volatile auto sector, where output of motor vehicles were down 5.9 percent from a year earlier while the production of auto parts was down 0.3 percent.

Another piece of good economic news was on home building: housing starts surged after a storm-related lull in September.  Single-family starts, which are more stable than multi-family starts - and add more per unit to GDP - tied the highest level since 2007.  Housing completions hit the highest level since 2008.

As a result of all this data, the Atlanta Fed’s “GDP Now” model says real GDP is growing at a 3.4 percent annual rate in the fourth quarter.  The New York Fed’s “Nowcast” says 3.8 percent.

Of course, if we get anything close to those numbers, some analysts are certain to claim the fourth quarter is just a hurricane-related rebound.  But the conventional wisdom has been way too bearish for years, and the third quarter has already been revised up to a 3.3...

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