U.S. GDP Growth in Q3 Revised Up to Strongest Since 2003; Final Demand Strengthened

GDP growth last quarter was revised sharply higher to 5.0%, up from last month's estimate of 3.9% growth. The rise was the strongest since Q3 2003. Strengthened growth in final demand accounted for the revision. The gain exceeded the 4.3% rise in the Action Economics Forecast Survey. So far this year, growth averaged 2.4%, held back by the 2.1% Q1 decline. 

Growth in domestic final demand was raised to 4.1% (2.7% y/y) from 3.2%. Consumer spending grew 3.2% (2.7% y/y), up from the 2.2% estimated earlier. The main source of the revision was a strengthened 2.5% rise (2.1 y/y) in services spending, up from 1.1% estimated last month. Health care spending, up 4.6% (2.8% y/y), accounted for most of the revision. Spending growth on recreation also was raised to 0.7% (-0.5% y/y) instead of declining 3.2%. Durable goods spending growth was increased to 9.2% (8.0% y/y) from 8.7% as motor vehicles purchases improved 11.2% (10.2% y/y), revised from 10.5%. Growth was down, however, from the 19.1% Q2 surge. Furniture & home furnishings spending growth was little-changed at 6.1% (5.9% y/y), though that was roughly half the Q2 increase. Purchases of nondurable goods also was increased to 2.5% (1.8% y/y) from 2.2%. Apparel spending slowed to a little-changed 1.2% rate (1.3% y/y). That compared to 5.6% Q2 growth. Gasoline purchases grew a slight 0.9% (-0.1% y/y) instead of falling marginally. 

Business investment growth also was strengthened to 8.9% (7.6% y/y) from 7.1%. Investment in intellectual property products gained 8.8% (5.6% y/y), changed from 6.4% estimated earlier. Spending on equipment grew at an improved 11.0% rate (8.7% y/y) led by a one-third rise (17.7% y/y) in transportation equipment. That was offset by a 6.9% decline (+1.0% y/y) in information processing equipment, earlier posted as -7.5%. Structures investment rose 4.8% (8.2% y/y), revised down from 6.4%. Residential investment advanced 3.3% (-0.7% y/y), not 2.7%. 

Government spending grew at a 4.4% rate, the quickest since Q2'09. Defense spending firmed at a 16.0% rate (-0.1% y/y), nondefense grew 0.4% (-1.5% y/y) and state & local buying rose an 1.1% (0.9% y/y), these figures were little-changed. 

The effect on growth from foreign trade was unrevised at 0.8 percentage points as exports rose 4.6% (3.8% y/y) and imports fell 0.9% (+3.4 y/y). The roughly neutral effect on economic growth from inventories also was little-revised.

Growth in corporate profits after tax was increased to 2.8% (5.1% y/y) from 1.7%. That still was down, however, from the 6.2% gain in Q2. So far this year profits have risen at an 8.2% annual rate after a 4.7% gain last year. Financial sector profits grew 3.6% (-8.2% y/y) and nonfinancial sector earnings rose 2.5% (5.8% y/y). Profits earned from the rest of the world gained a strengthened 4.2% (0.2% y/y).

The GDP price index increased at an unchanged 1.4% annual rate (1.6% y/y). The personal consumption index slowed to 1.2% (1.5% y/y) as durable goods prices fell 2.1% (-2.4% y/y). The service price index rose 1.8% (2.3% y/y), the weakest gain in two years. The nonresidential investment price index rose at a steady 1.1% rate (1.2% y/y) but the residential index jumped 7.2% (6.0% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

The U.S. House Price Index from the Federal Housing and Finance Agency (FHFA) increased 0.6% in October (4.5% y/y) following an unrevised no-change during September. The increase left three-month growth at 4.5%, about where it's been since the Spring. Prices remained the strongest in the Pacific region, up 6.0% y/y, though recently growth eased. Home price inflation in the Mountain region eased to 5.1% y/y versus the April 2013 high of 14.2%. Downward momentum has stabilized, however, with three-month growth a positive 9.0%. In the West North Central region, the observation is the same. Prices rose 0.5% (3.8% y/y) and the three-month growth rate of 3.9% is improved from a -0.1% as of June. In the East North Central region, three-month growth picked up to 8.2%, its best in six months.

Much improvement in prices is not in evidence, however, in other sections of the country. In the Middle Atlantic Region, prices slipped 0.1% in October (+0.8% y/y) and rose just 0.8% on a three-month basis, down from 7.6% in May. In New England, prices rose 0.2% but only 2.3% y/y. The three-month decline of 1.4% was the weakest showing since the Winter. In the West South Central region, a 0.2% price decline left y/y growth at a respectable 5.6% but the 5.1% three-month change half what it was this Winter. 

The FHFA house price index is a weighted repeat sales index. It measures average price changes in repeat sales or refinancings on the same properties. It is based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single family properties are included. The FHFA data is available in Haver's USECON database.

New home sales during November declined 1.6% to 438,000 (-1.6% y/y) from 445,000 in October, initially reported as 458,000. The latest figure matched expectations in the Action Economics Forecast Survey. These volume numbers are quoted at seasonally adjusted annual rates.

The median price for a new home declined 3.2% to $280,900 (+1.4% y/y) from $290,100, revised from $305,000. The average price of a new home declined 14.2% to $321,800 (-4.1% y/y) from $375,200, revised from $401,100.

Home sales fell through most the country. Sales in the Northeast declined 12.0% to 22,000 and were off by one-third y/y. Sales in the South fell 6.4% to 233,000 (-4.1% y/y) and sales in the Midwest declined 6.3% to 59,000 (+3.5% y/y). Sales in the West offset these setbacks with a 14.8% rise to 124,000 (10.7% y/y).

The inventory of unsold homes increased 1.4% to 213,000 (15.1% y/y), the highest level since June 2010 and up by nearly half from the 2012 low. The months' sales supply of new homes inched up m/m to 5.8 months versus last year's low of 3.9 months. The length of time to sell a new home was essentially stable m/m at 3.0 months, down from 14.0 months at the end of 2009.

The data in this report are available in Haver's USECON database. The consensus expectation figure from the Action Economics survey is available in the AS1REPNA database.