Wells Fargo’s Economic Commentary posted last week makes a case for robust economic growth to close out 2013.
Economic data over the past two weeks continued to support thecase for robust economic growth to close out 2013. After thelarger-than-expected 4.1 percent GDP growth print for the thirdquarter, expectations were quite low for fourth-quarter economicgrowth.
Over the past couple of weeks, signals that the Q3inventory build is not reversing as quickly as expected combinedwith stronger readings for personal spending has led us toupwardly revise our outlook for fourth-quarter GDP growth to2.5 percent.Consumer spending continues to surprise to the upside.Consumer spending rose a robust 0.5 percent in November,driven in part by stronger services spending likely related to thecolder winter weather.
After accounting for inflation, realconsumer spending 0.5 percent in November. Personal incomegrowth bounced back for the month after declining in November,rising 0.2 percent. The saving rate also fell for the month to4.2 percent, the lowest reading since last February in the wake ofthe federal tax policy changes.
Consumer confidence continued tostrengthen in the wake of the federal government shutdown, asthe present situation index rose to a new post-recession high inDecember. The future expectations series also posted a strongerreading suggesting that the momentum in consumer spending islikely to continue in the months ahead.
Given the robustNovember consumer spending reading, we now expect personalconsumption to rise 4.0 percent (annualized) in the fourthquarter, up from the 2.0 percent reading in Q3.On the housing market front, new home sales slipped a bit inNovember but the upward revisions to prior months’ data suggestthe housing market recovery remains intact. The report alsoindicated that new home inventories remained extremely low.Home prices, as measured by the S&P Case-Shiller index postedanother rise in October.
Home prices by this measure are now13.6 percent above the year-earlier level. Construction spendingactivity for November surprised to the upside as prior months’data was also revised higher. Construction activity rose across theboard with the exception of public activity. Private residentialconstruction posted a sizable 1.7 percent increase after a weakOctober reading.
Economic data for the manufacturing sector signaled more robustindustrial production to end the year. Durable goods ordersposted a sizable 3.5 percent jump in November. Core capitalgoods shipments indicated that equipment purchases may help tosupport Q4 GDP growth. In addition, the report pointed toward aslower pace of inventory drawdown in Q4, which should also helpto dampen the expected drag from inventories for the quarter.
The December ISM-Manufacturing reading this week pointedtoward continued momentum for industrial production. Theheadline index pulled back on the month but remained firmly inexpansion territory. Several key components posted improvementincluding new orders and employment. The fact that the neworders component continued to show strength supports our viewfor continued economic momentum to start off the new year.
