Financial FAQs

We are seeing faster economic growth in the fourth quarter, even after the upward revision of Q3 GDP growth to 2.7 percent from 2.0 percent. The reason? The 146,000 jump in November payroll jobs, soaring retail sales, and the Fed’s determination to maintain QE3 with $45 Billion per month in bond purchases for several more years, if necessary, to boost employment.

This is in spite of Hurricane Sandy that shut down much of the east coast. We can therefore expect that Q4 growth might exceed 3 percent, putting us back on the path to a more normal growth pattern.

Retail sales is leading the growth. Motor vehicle sales rebounded 1.4 percent after a 1.9 percent decrease in October.  Earlier in the month, unit new motor vehicle sales pointed to an even stronger increase but the Commerce Department’s sample size is not as good and all Personal Consumption Expenditure spending may be even stronger.

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Graph: Econoday

And industrial production rebounded in November with notable help from Hurricane Sandy and a boost in auto assemblies, up 1.1 percent, following a decline of 0.7 percent in October (originally down 0.4 percent).  The market consensus was for a 0.3 percent gain. Capacity utilization for total industry rose to 78.4 percent from 77.7 percent in October.

The bottom line is that manufacturing has seen sharp swings over the last two months due to Hurricane Sandy.  But net for the period, this sector is still soft.  The clearly positive news is that consumers are out shopping for new cars, which is good news for manufacturing.  It suggests that while consumers are in a bad mood about the pending fiscal cliff, potential tax increases, they are spending despite survey recorded glum views, said Econoday .

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And inflation is falling.  Year-on-year, overall CPI inflation came in at 1.8 percent versus 2.2 percent in October (seasonally adjusted). The core rate eased to 1.9 percent in November from 2.0 percent the prior month.

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Lastly, the Federal Reserve just announced a new policy at its last FOMC meeting of the year.  It voted to continue with QE3, the $45 Billion in securities’ purchases per month until either the unemployment rate falls to 6.5 percent from its current 7.7 percent, and/or inflation tops 2.5 percent per year.

Since it looks like inflation has been subdued, and the Fed believes it will take until 2016 to bring down the unemployment rate to its new target, the Fed could maintain easy credit for several more years, which is the best of all conditions for economic growth to continue.

Harlan Green © 2012