Economic Update 12/29/14

THE ECONOMY IS BOOMING

Looking at two vital indicators, it becomes hard to draw any other conclusion. In its final estimate, the Commerce Department put Q3 growth at 5.0% – the best quarterly GDP since Q3 2003, following a 4.6% expansion in Q2. Consumer spending was up 3.2% in the third quarter, business investment up 8.9%. Speaking of personal spending, the latest Commerce Department figure on that was also impressive – a November gain of 0.6%, complemented by a gain of 0.4% in personal income. Growth and household spending may not be quite as notable in December or Q4, but the recovery is definitely in full swing.

GREAT GROWTH DOESN’T SPUR FALL HOME BUYING

Existing home sales fell for only the second time in eight months in November, and the decline was sharp: the National Association of Realtors announced a 6.1% slip. New home purchases fell 1.6% last month according to the Census Bureau, marking their first down month since July.

CONSUMER SENTIMENT HOLDS STEADY

At 93.6, the University of Michigan’s last consumer sentiment index reading of 2014 was a tiny bit below expectations. Economists polled by MarketWatch had forecast the final December index to come in at 93.8, unchanged from a month earlier.

THE DOW TAKES IT TO ANOTHER LEVEL

It cleared 18,000 during an abbreviated market week, settling Friday at 18,053.71 thanks to a 1.55% gain across 3½ trading days. Weekly advances also came for the Nasdaq (1.23% to 4,806.86) and S&P 500 (0.88% to 2,088.77). By Friday afternoon, oil prices had sunk under $55 in after-hours trading on the NYMEX; crude lost 3.51% on the week. Gold rallied Friday to trim its 5-day loss to 0.23%; on the COMEX, the yellow metal was at $1,194.40 at week’s end.

THIS WEEK: Nothing major is scheduled on Monday. Tuesday, the Conference Board’s final consumer confidence index of 2014 arrives along with the October edition of the Case-Shiller home price index. On Wednesday, investors will parse the latest initial claims figures and the November pending home sales report from the NAR; U.S. bond markets should close at 2:00pm EST, but the NYSE and NASDAQ will each have a full trading day. Wall Street closes Thursday for New Year’s Day, along with most foreign financial markets; China, however, will present its December factory PMI. Friday sees the release of ISM’s December manufacturing PMI and two key foreign PMIs tracking the Chinese service sector and eurozone manufacturing.