Fleet Management

Economic Watch: GDP Up; Construction Starts, Consumer Confidence Down

November 25, 2014

By Evan Lockridge

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UPDATED -- The health of the American economy was much stronger in the third quarter of the year than initially thought, according to the U.S. Commerce Department.

The gross domestic product increased at an annual rate of 3.9% compared to 3.5% reported a month earlier. Despite the uptick, this measure of the nation’s output of goods and services is down from the second quarter pace of a 4.6% increase, while this latest reading marks the strongest back-to-back quarterly performance since 2003.

The revised third quarter figure was better than many economists were forecasting.

“Hearty, positive revisions in nearly all key categories of growth, suggesting the economy was on firmer footing than originally expected at the start of the second half,” said Lindsey Piegza, chief economist with the investment firm Sterne Agee. “Still, with international growth expected to eat further in the U.S. external sector as we head to the end of the year, government spending likely to cool after a ramp up in end-of-the-fiscal-year defense spending, and a pullback in producer activity as consumers appear to be tightening purse strings particularly on goods spending, a stronger third quarter report may simply mean a further way to fall as we turn the corner into 2015.”

She said the U.S. Federal Reserve remains cautiously optimistic about the economy, with lingering and new barriers to growth still stunting official's desire to raise interest rates in the near term.

“At this point, while things appear to be pointing in the right direction…we still need further confirmation that the U.S. economy, including the labor market, is on strong enough footing before the Fed can think about raising rates,” Piegza said.

Consumer Confidence Declines

Also released Tuesday was The Conference Board Consumer Confidence Index, which declined in November following an October rebound.

The index now stands at 88.7, a five-month low, and down from 94.1 in October. The Present Situation Index declined from 94.4 to 91.3, while the Expectations Index decreased sharply to 87 from 93.8 in October.

“Consumer confidence retreated in November, primarily due to reduced optimism in the short-term outlook,” said Lynn Franco, director of economic indicators at The Conference Board. “Consumers were somewhat less positive about current business conditions and the present state of the job market; moreover, their optimism in the short-term outlook in both areas has waned. However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales.”

Construction Starts Down

Meantime, a separate report released Monday shows the value of new construction starts in the U.S. settled back 4% in October according to Dodge Data & Analytics, formerly McGraw Hill Construction. The decline followed the 10% increase reported in September, which was the strongest month for total construction starts so far in 2014.

The Dodge Index of new construction starts. Graphic: Dodge Data & Analytics
The Dodge Index of new construction starts. Graphic: Dodge Data & Analytics

During the first ten months of 2014, total construction starts increased 5% from the same period a year ago.

The October statistics lowered the Dodge Index to 125 compared to a revised 129 for September. October's reading for the Dodge Index was the same as the 125 average for the third quarter and above the 117 average for this year's January-September period.

"Recent months have shown an up-and-down pattern for construction starts around what is still a rising trend," said Robert A. Murray, chief economist for Dodge Data & Analytics. "Nonresidential building is making a more substantial contribution this year to the construction expansion, notwithstanding its November decline. Various factors affecting activity for this sector continue to be positive.”

He noted this year's retreat by non-building construction has stayed measured, helped in the near term by the recent $10.8 billion “patch” to the Highway Trust Fund, although the month-to-month performance for non-building construction still reflects the swings shown by the volatile electric utility category.

“The continued growth for residential building in 2014 is being led by multifamily housing, featuring groundbreaking for numerous multifamily high-rises in major cities, while single family housing remains stalled for now,” said Murray.

Update adds consumer confidence report.

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