Sources of GDP growth in Q3 2012
In a short week for the financial markets, they managed to remain steady, although the S&P500 continues to be about 3% below its level on September 13th when the Fed announced its third round of quantitative easing.
Hurricane Sandy is over, but the impact of the disaster will be felt for some time to come. Undeniably, the human toll is enormous. Preliminary estimates suggest that the hurricane will easily rank among the ten costliest on record and will perhaps trail only Hurricane Katrina once we get a clear read on the losses. From a macroeconomic point of view, the impact of the catastrophe is unlikely to be large enough to derail the current recovery.
On Friday, the Bureau of Labor Statistics announced that payrolls rose by a greater-than-expected 171,000 in October, as every major private sector industry group added workers, while the job counts from the previous two months were revised higher. The continued decline in initial unemployment claims also points to a stabilizing labor market, as does the recent improvement in consumer sentiment about job availability.
Additionally, there were signs in the past week that manufacturing activity is expanding again and that home prices are still climbing. Both new and pending existing home sales were higher in September.
This trend is further reinforced by the improvement in consumer confidence. The University of Michigan's consumer sentiment index came in at 82.6 for October, its highest point in over five years. Consumer expectations have been rising in recent months, helping to explain the marked pickup in retail sales since the end of the second quarter. Considering this, it is not a surprise that consumer spending was the strongest driver behind the 2% GDP growth during the third quarter of this year, followed by positive contributions by the housing and government sectors.
Although the Hurricane Sandy may have some temporary negative impacts on the numbers, the economic fundamentals appear to be on an upward trend.