A Whopping 3.9% GDP Report, But Still Not Without Its Weaknesses

11/25/2014 8:49 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Put this quarter’s growth number together with the 4.6% growth rate in the second quarter and you’ve got the biggest back-to-back growth since the end of 2003, but there's another number that still concerns MoneyShow’s Jim Jubak.

I’ll take it, but the upward revision in third quarter US GDP growth to an annualized 3.9% from the prior estimate of 3.5% isn’t without its weakness. Economists surveyed by Bloomberg were looking for a downward revision to 3.3% growth.

How strong does it seem? Put this quarter’s growth number together with the 4.6% growth rate in the second quarter and you’ve got the biggest back-to-back growth since the end of 2003.

The upward revision was largely driven by a smaller-than-estimated decrease in inventories. Real final sales, which excludes changes in inventories, fell in this revision to 4.1% from 4.2%. (That still left the real final sales growth in the quarter the strongest since the fourth quarter of 2010.)

The number that concerns me in this revision, however, is the big drop during the second quarter in the increase in wages from previous estimates for that period. Wages and salaries rose by $51.9 billion. That’s far below the initially reported $102.5 billion for the second quarter.

Preliminary numbers say that wages and salaries increased by $66 billion in the third quarter.

The timing of the big drop in gasoline prices—estimated by economists to put $50 or $60 billion into consumers’ pockets—couldn’t be better, it seems.

There was weakness as well in today’s positive report on existing home sales for October. The National Association of Realtors said that sales of existing homes rose year-over-year in October. But purchases by first-time buyers dropped to 29%, and over the last year, first-time buyers have accounted for just 33% of sales. That’s the lowest participation by first-time buyers in the last 30 years and, according to Briefing.com, seven percentage points below the historical average. The relative absence of first-time buyers isn’t a sign of a healthy housing market.

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