While The U.S. Commerce Department reported the GDP (a measure of the nation’s total output of goods and services) slowed further in the third quarter of the year from –1.1% to –1.3%, there was improved news behind the figures.
All of the change was in services and inventory, while purchases of consumer and investment goods were revised up modestly. This means that more of the inventory recession than we thought is now behind us.
Meantime housing starts in November rose to 1.65 million from 1.52 million in October, permits for future starts were up over 5 percent, and the National Association of Homebuilders Housing Activity index jumped 8 points to 58 in December. Single family housing is nearly back to pre-September levels and multi-family housing has surged to a nearly two year high. Credit lower interest rates and a decline in layoffs.
There was also better news relating to the labor market: Initial claims for unemployment benefits dropped to 384,000 in the week ending Dec. 15, the lowest number since August. New claims had peaked at 535,000 in late September. The number of laid off workers receiving unemployment benefits has declined by 250,000 over the past two months.
While personal income fell 0.1% in November from October, the same decline as the previous two months, wages and salaries actually rose very slightly while personal interest received and small business profits declined. Spending and freight will not experience a sustained decline as long as wages do not decline.
Consumers spent 0.7%, less in November after a 3% pickup in October, largely cars and trucks bought at zero percent interest rates. November spending was 0.5% higher than the August, the most recent "normal" month. This guarantees that fourth quarter consumption will be well above the third quarter. To the extent that cars were bought ahead because of no interest loans, there may be little of any overall growth in consumer spending in the winter quarter, but non-auto durable goods and consumer packaged goods should still record modest growth from the fourth quarter of 2001.