Economic Commentaries

Entries for November 2013


Delayed by the government shutdown, the Commerce Department reported this past week that real GDP grew 2.8% in the summer and that inflation was at a 1.9% rate. A surge of inventory investment boosted growth as final sales rose at only a 2% rate. Consumption and investment were especially weak while residential investment was strong.

Activity in September, the quarter’s final month, was especially soft for final demand and this spilled into October. The back to school selling season failed to materialize for retailers; motor vehicle sales dropped for a second month; and housing demand faltered despite a relapse in mortgage rates. Household demand is continuing to suffer from an absence of income growth. In the third quarter wage and salary income rose by only 0.5%. And in October hourly earnings rose only 2.2% year on year. Thankfully food and energy prices are easing so as to free up what little discretionary income exists.

Given this demand weakness we suspect retailers will be quite cautious in building inventory and in hiring workers for the coming holiday season. Thus, whatever boost inventory investment provided to the third quarter is likely to be taken back in the current quarter. The upshot is that while quarterly patterns can show deviations, the underlying trend of weak growth remains in place.

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