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.
Wells Fargo Economics & Financial Report / Feb 20, 2023
Inflation in the U.K. receded for the third straight month in January, with the headline rate coming in at 10.1% year-over-year. In bad news, this is still five times the Bank of England\'s 2% target.
Wells Fargo Economics & Financial Report / Jan 20, 2023
The housing sector has borne the brunt of the Fed\'s efforts to slow the economy, and this week\'s data showed the industry continues to reel.
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
Wells Fargo Economics & Financial Report / Sep 19, 2020
A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well.
Wells Fargo Economics & Financial Report / Jun 25, 2022
The biggest economic news was Fed Chair Powell presenting the Federal Reserve\'s semiannual Monetary Policy report to Congress this week.
Wells Fargo Economics & Financial Report / Nov 10, 2020
As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states.
Wells Fargo Economics & Financial Report / Sep 20, 2022
Financial markets reacted in a zig-zag pattern to this week\'s economic data ahead of the next FOMC meeting. Price pressure is still not showing the sustained slowdown the Fed needs before it takes its foot off the throttle of tighter policy.
Wells Fargo Economics & Financial Report / Jun 26, 2021
Okay, so I’ve gotten about half a dozen calls since Wednesday asking if I saw the May CPI numbers that came out this week.
Wells Fargo Economics & Financial Report / Apr 11, 2020
The Federal Reserve greatly expanded the collateral that it is willing to buy, further easing pressures in financial markets.