Perusing today's report on third-quarter U.S. gross domestic product for signs of liftoff from 2 percent growth, what struck me was more of the same: housing and durables. Specifically, residential fixed investment and consumer spending on durable goods.
If you look at year-over-year changes to remove quarterly noise, residential investment was up 15.3 percent in the third quarter while spending on durables rose 7.6 percent. These two sectors typically lead the business cycle because they are interest-rate sensitive. Hence, the heavy weight -- five of 10 components -- given to manufacturing and housing in the Index of Leading Economic Indicators despite their small share of the economy.
Housing was slow out of the gate this time because of the detritus from the burst bubble, mainly foreclosed homes and bad mortgage loans. But it's been carrying its weight the last two years, with average annualized quarterly increases of 14.5 percent.
What about everything else? While real GDP increased 2.8 percent in the third quarter, inventories accounted for almost a third of the growth. Consumer spending added 1 percentage point and net exports 0.3 percentage point. Real final sales, which is GDP less inventories, rose 2 percent, close to the trend since the recession ended in June 2009. Final sales to domestic purchasers, which excludes exports and includes imports, rose a meager 1.7 percent.
So there you have it. Almost five years of zero-percent interest rates, about $3 trillion of asset purchases by the Federal Reserve and lots of forward guidance on both, and the U.S. economy still can't get out of its own way. Whatever else the Fed decides, tapering asset purchases isn't in the cards any time soon.
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