Headline GDP continues to send mixed signals on the direction of the U.S. economy. During Q3, real GDP rose at a 2.6% annualized rate, ending the recent string of quarterly declines in growth registered in the first half of 2022. At first look, the expansion in real GDP is a welcome sign that the economy is busting out of its recent slump. The underlying details, however, paint an entirely different picture. The top-line real GDP figure was boosted by a 2.8 percentage point contribution from real net exports. Real exports of goods and services rose solidly during the quarter. Considering the current strength of the U.S. dollar and the economic struggles of America's trading partners, the strong growth in exports is unlikely to be sustained. On the other hand, real imports pulled back in Q3 as supply chains continue to normalize, businesses slow inventory builds and consumer demand wanes.
Taken together, consumer spending and business fixed investment, which are a better measure of the underlying trend in economic activity, were essentially flat during Q3. A sharp drop in structures spending dragged down overall business fixed investment, which fell 4.9% during the quarter. New nonresidential development continues to be hampered by uncertain demand and rising building material prices. Equipment and intellectual property spending both expanded solidly. The impacts of higher interest rates as well as the return to more typical consumer behavior were evident in the consumer spending data. Real personal consumption expenditures (PCE) registered a relatively soft 1.4% annualized rise. The quarterly gain was mostly the result of a solid increase in services spending, which is still benefiting from unleashed pent-up demand from the pandemic. Spending on goods, which is more sensitive to interest rates, declined for the third straight quarter.
Housing is another sector that is highly responsive to financing costs. Residential fixed investment plummeted 26.4% during Q3, a sharp decline brought on by this year's spike in mortgage rates. Since the start of the year, mortgage rates have moved up rapidly and are currently hovering above 7.0%. The climb in borrowing costs has significantly reduced affordability and pushed buyers to the sidelines. If October's drop in mortgage demand is any indication, residential fixed investment is likely to remain a drag on overall GDP. Mortgage applications for purchase have slipped in every week so far in October and are down almost 42% over the year. Pending home sales and new home sales are also on a steep downward trend, with both retreating markedly in September. Home prices are now declining on a monthly basis. The S&P Case-Schiller National Home Price Index dropped 1.3%, the second straight monthly decline.
This Week's State Of The Economy - What Is Ahead? - 20 March 2020
Wells Fargo Economics & Financial Report / Mar 21, 2020
Daily life came to a screeching halt this week as governments, businesses and consumers took drastic steps to halt the COVID-19 pandemic.
July 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jul 30, 2020
The recent surge in COVID-19 cases indicates that elected officials re-opened the economy too soon, that too many Americans are flaunting social distancing guidelines, and that the virus is likely to be around longer than we’d hoped.
This Week's State Of The Economy - What Is Ahead? - 05 April 2024
Wells Fargo Economics & Financial Report / Apr 09, 2024
Nonfarm payrolls expanded 303K in March, surpassing all estimates submitted to Bloomberg. The continued strength in hiring suggests less urgency for policymakers at the Federal Reserve to lower the target range of the fed funds rate.
This Week's State Of The Economy - What Is Ahead? - 22 January 2021
Wells Fargo Economics & Financial Report / Jan 23, 2021
Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%.
This Week's State Of The Economy - What Is Ahead? - 16 April 2021
Wells Fargo Economics & Financial Report / Apr 17, 2021
Data released this week continue to show that the economic recovery has gained momentum in March. The much anticipated consumer boom has arrived.
This Week's State Of The Economy - What Is Ahead? - 04 June 2021
Wells Fargo Economics & Financial Report / Jun 08, 2021
The CDC\'s relaxation of its mask mandate occurred mid-May, and as data for that month begins rolling in this week, it is evident there is no lack of demand. Supplies, on the other hand, are a worsening problem.
This Week's State Of The Economy - What Is Ahead? - 24 September 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
While fears of an Evergrande default in China were rattling financial markets, for those of us in Southeast Texas who have survived the typically very hot months of July, August and September, this week brought the very welcome first early fall-like
This Week's State Of The Economy - What Is Ahead? - 24 April 2020
Wells Fargo Economics & Financial Report / Apr 27, 2020
Oil prices went negative for the first time in history on Monday as the evaporation of demand collided with a supply glut. In the past five weeks, 26.5 million people have filed for unemployment insurance, or more than one out of every seven workers.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
This Week's State Of The Economy - What Is Ahead? - 06 May 2022
Wells Fargo Economics & Financial Report / May 18, 2022
Unlike Yordan Alvarez, no one is expecting the Fed to stand back and admire their handiwork after this weeks 50 basis point increase in the Fed Discount Rate. Similar to Yordan, their effort is more of a single and not a home run.
