Economy Watch: US Economic Growth Surges in Q3

Real U.S. gross domestic product increased at an annualized rate of 5 percent; single-family home sales fall; and total income increase.

Real U.S. gross domestic product increased at an annualized rate of 5 percent in the third quarter of 2014, according to the third (and final) estimate released by the Bureau of Economic Analysis just before the Christmas holiday. That’s the strongest quarterly GDP growth since 2003, well before the recession.

The final GDP estimate is based on more complete source data than were available for the second estimate issued last month, notes the BEA. In the second estimate, the increase in real GDP was pegged at 3.9 percent. With the third estimate for the third quarter, both personal consumption expenditures (PCE) and nonresidential fixed investment increased more than previously reported. In the case of PCE – people out buying goods and services – the increase was revised from 2.2 percent to 3.2 percent.

The acceleration in GDP growth also reflected a downturn in imports and an upturn in federal government spending. These were partly offset (but not that much) by a downturn in private inventory investment and decelerations in exports, in state and local government spending, in residential fixed investment, and in nonresidential fixed investment.

Single-Family Home Sales Drop

Not all the news before the holiday was good, however. Sales of new single-family houses nationwide in November 2014 came in at an annualized rate of 438,000 units, according to the Census Bureau and HUD. That’s 1.6 percent below the revised October rate and 1.6 percent below the November 2013 rate.

The bureau also reported that new home sales for the year, that is, through November, totaled 399,000 units. That’s up 0.2 percent from the same period of 2013, so it’s entirely possible that new home sales will come in for all of 2014 at about the same as last year.

New residential sales simply haven’t recovered very much since the recession. Though the current rate — above 400,000 units a year — is better than the lows of around 300,000 in 2010 and ’11, that’s still low historically speaking. In non-recessionary years, the last time that few new homes sold each year was in the 1960s, and even then most years broke 500,000 per year (at a time when the U.S. population was considerably smaller than it is now: 188.4 million in 1963 vs. 316.1 million in 2013).

Income Up, Unemployment Claims Down Before Christmas

The Bureau of Economic Analysis also reported ahead of the holiday that Americans’ personal income increased $54.4 billion, or 0.4 percent, in November compared with October. PCE increased $67.9 billion, or 0.6 percent, while real PCE — PCE adjusted to remove price changes — increased 0.7 percent in November, compared with an increase of 0.2 percent in October.

Separately, the U.S. Department of Labor reported on Wednesday that for the week ending Dec. 20, initial unemployment claims were 280,000, a decrease of 9,000 from the previous week. The four-week moving average was 290,250, a decrease of 8,500 from the previous week.

After setting record highs on the Monday before Christmas, Wall Street did it again on Tuesday, with the Dow Jones Industrial Average ending up 64.73 points, or 0.36 percent, and finishing above 18,000 for the first time. Also on Tuesday, the S&P 500 advanced 0.17 percent but the Nasdaq was down 0.33 percent. On the Wednesday, the trading day was short, and the indexes didn’t move much: the Dow gained 6.04 points, or 0.03 percent, while the Nasdaq was up 0.17 percent. The S&P 500 edged down 0.01 percent.