GDP Up, Home Sales Down -- Can the Economy Weather a Housing Storm?

by: SA Eli Hoffmann

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Pace of Economy’s Growth Is Revised Upward [New York Times] and Housing Slump Likely to Take Toll on 4th-Quarter Growth [Wall Street Journal]

Summary: A slew of economic data released yesterday suggests a mixed but largely positive outlook for the U.S. economy: The Commerce Department revised the GDP expansion to a 2.2% annual rate from July through September, up from the 1.6% announced in October. New homes sales dropped 3.2% from September, and a whopping 25.4% y/y, marking the 9th consecutive month of y/y declines over 10% (the longest such GDP 11 29 06 Personal Consumptionstretch since 1991). The residential-fixed-investment component of the GDP, which reflects housing spending, tumbled 18% during the quarter, its biggest drop in 15 years, shaving 1.16% off the growth figure and prompting some economists to predict economic growth will slow in Q4 between 1.5-2%. But beige book figures released yesterday suggest consumer spending is coping with the housing slump: "Despite continued softness in automobile and housing-related sales, most districts reported that consumer spending increased during October and early November," adding that the economy continues to experience "moderate growth." Labor markets remain tight and wage growth was "generally moderate," but "more rapid" in some areas (San Francisco) especially for skilled workers in health care, finance and construction. The Commerce Dept. also updated its personal-consumption index: Excluding food and energy inflation rose 2.2% in the third quarter, down from 2.7% in Q2, suggesting inflation isn't flaring despite signs of climbing wages.
Related links: Department of Commerce GDP News Release (.pdf), Census Bureau Housing Release (.pdf). Commentary: GDP Revised Higher: What's With All These Revisions?!Housing Data: There Goes The EconomyHomes Sales Up, Prices DownBernanke Sounds Positive, Yet Cautious Note on the Economy
Potentially impacted stocks and ETFs: S&P 500 Index (NYSEARCA:SPY) • NASDAQ 100 Trust Shares ETF (QQQQ) • iShares Russell 2000 Index ETF (NYSEARCA:IWM) • iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY) • iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) • iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT)

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