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Economic Week in Review: Still on track without much speed

September 27, 2013

Economic reports did little to inspire—or discourage—this week. The data weren't particularly strong or weak, and analysts' forecasts were generally on target. The latest estimate of second-quarter gross domestic product (GDP) was consistent with the estimate released in August. Personal spending and income increased somewhat in August. Also, durable-goods orders were up slightly in August, while consumer confidence slipped in September.

For the week ended September 27, 2013, the S&P 500 Index fell 1.1% to 1,692 (for a year-to-date total return––including price change plus dividends––of about 21%). The yield of the 10-year U.S. Treasury note was down 11 basis points to 2.64% (for a year-to-date increase of 86 basis points).

No big surprises in second-quarter growth

The U.S. economy grew by 2.5% on an annualized basis in the second quarter of 2013, after adjusting for inflation, according to the Commerce Department's latest estimate of GDP. That reading was slightly below analysts' forecasts and unchanged from last month's advance estimate. Economic growth was stronger than the first quarter's pace of 1.1%. Business spending helped drive the stronger growth after detracting in the first quarter, while government spending dipped for the third straight quarter, but less so. Gains in state and local government spending couldn't offset a fall in spending by the federal government. The trade component was down slightly from last month's estimate but still an improvement over the first quarter. Corporate profits, which are not annualized, rose 3.3% in the second quarter after slipping 1.3% in the first quarter.

"Economic growth is progressing as expected," said Vanguard economist Andrew J. Patterson. "As the impact of fiscal adjustments (spending cuts and tax increases) continues to diminish, we should see somewhat stronger growth next year."

GDP: Under the hood
Second
estimate
Third
estimate
2Q 2013 real GDP growth estimates (annualized)
+2.5% +2.5%
Components: Contributions/subtractions (percentage points)
Consumer spending +1.2 +1.2
Housing-sector investment* +0.4 +0.4
Business spending and inventories +1.1 +1.0
Trade (exports minus imports) 0.0 –0.1
Federal, state, and local government spending –0.2 –0.1

*Together with business spending and inventories, the combined amount equals the "investment" category of GDP.

Get a closer look at GDP and its components »

Consumer confidence dips

The Conference Board's index of consumer confidence declined slightly to 79.7 for September, close to what analysts expected. Although the index was down from August's revised reading of 81.8 and is at its lowest level in four months, it's considerably higher than January's 58.4 figure. The current economic conditions component of the index rose to 73.2 from 70.9, as consumers grew more optimistic about present business and labor market conditions. However, the expectations component declined to 84.1 from 89.0 as consumers' outlook for business conditions and labor market conditions worsened. Compared with August, more consumers are expected to buy a car or house in the next six months, although fewer anticipated buying a major appliance. Inflation expectations slid a bit to 5.3% from 5.4%.

Small gain for durable-goods orders

Orders for long-lasting manufactured goods rose 0.1% in August, near analysts' expectations. Although small, the increase was a solid improvement over July's revised 8.1% decline. Orders have climbed four of the past five months. Much of the rebound was due to the change in transportation equipment orders, which swung to a 0.7% increase from a 21.9% decrease.

After two straight monthly declines, shipments climbed 0.9%, led by an increase in transportation equipment. Unfilled orders were unchanged but have still recorded positive readings six of the last seven months. Inventories edged up 0.1%, their fourth advance in the past five months. "Core" capital goods orders—which consist of nondefense capital goods excluding aircraft and are a closely watched indicator of business spending—slipped 0.2%.

New-home sales rebound

Sales of single-family new homes increased 7.9% in August, in line with analysts' expectations. Although annualized sales bounced back following July's 14.1% decrease, they're a bit short of levels maintained through the first half of 2013, as higher mortgage rates have weighed on demand. The median sales price in August was $254,600, up 0.5% from a year ago. On a regional basis, sales rose in the Midwest, South, and Northeast but declined in the West. The number of available homes rose 3.6% in August and 22.4% from a year ago. At the current sales rate, the months of supply is 5.0, down slightly from July.

Personal income accelerates

Personal income rose 0.4% in August, matching analysts' expectations and ahead of July's 0.2% rise. Both private wages and salaries and government wages and salaries also increased in August after declining in July. Rental income increased as well, although the component is too small to have a large impact on total income. Consumer spending increased 0.3% on advances in durable-goods spending and services spending. Also, overall prices rose 0.1%, core prices 0.2%, and real spending 0.2%. The savings rate moved to 4.6%.

The economic week ahead

Much of next week's focus will be on Friday's monthly employment report. Also, releases on construction spending and the ISM Manufacturing Index are scheduled for Tuesday and factory orders and the ISM Non-Manufacturing Index for Thursday.

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
September 23       –3 bp –0.5%
September 24 Consumer Confidence (September)
Source: The Conference Board
79.7 79.8 –5 bp –0.3%
September 25 Durable-Goods Orders (August)
Source: Commerce Department
+0.1% +0.2% –3 bp –0.3%
  New-Home Sales (August)
Source: Commerce Department
421,000 420,000  
September 26 Initial Jobless Claims (week ended September 21)
Source: Labor Department
305,000 325,000 +3 bp +0.3%
  Real Gross Domestic Product (2Q annual rate)
Source: Commerce Department
+2.5% +2.6%  
September 27 Personal Income (August)
Source: Commerce Department
+0.4% +0.4% –2 bp  –0.4%
  Personal Spending (August)
Source: Commerce Department
+0.3% +0.3%  
    Weekly change –11 bp –1.1%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
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  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 
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