2008 record      

 

The economy rose at a 2% annual rate in the third quarter, revised down from 2.1% and Q2’s 3.9%, the Commerce Department said Tuesday. The U.S. is on pace for a 10th straight year of failing to achieve 3% annual growth. That helps explain why it took nearly a decade for the Federal Reserve to raise interest rates, and why Donald Trump has had so much support in his presidential run.

In the third quarter, exports were a little weaker than previously estimated, as U.S. manufacturers and others struggle to sell to weak overseas economies amid a strong dollar. Inventories rose a little less than expected, subtracting 0.7 percentage point from Q3 GDP growth. Most economists expect business destockpiling still has a ways to go.

Business investment rose at a 9.9% pace, the best in a year. Consumer spending, which accounts for roughly 70% of economic activity, rose at a solid 3% pace amid improving jobs and wages and cheap gas prices at the pump.

But through the first nine months of 2015, GDP has risen at a 2.2% rate. Most economists see Q4 growth as lackluster, leaving the economy with less than 3% yet again. This decade of futility would the worst in the post-World War II era.

Sluggish growth has left wages stagnant for Americans, especially noncollege educated men. This blue collar discontent has generated resentment and forms the base of Trump’s populist presidential run. More than two-thirds (69%) of Trump supporters say the U.S. is still in a recession, according to the latest IBD/TIPP Poll, even though the current expansion started in June 2009; 44% of Trump supporters are in job-sensitive households, meaning they or someone in their family are looking for work or worried about losing their job.

The decade of weak economic growth — including the sharpest recession since the Depression and the weakest expansion since WWII — also lines up with the Fed’s reluctance to raise rates. Until this month’s move, the Fed hadn’t hiked since mid-2006, and for nearly 7 years the rate had been near zero.

Job growth has been sluggish and wages too. Yes, unemployment has fallen to 5%, but much of that reflects a sharp decline in the labor force participation rate.

Fed Chairwoman Janet Yellen and other policymakers have stressed that future tightening will be gradual, if not glacial.

In other economic news:

Existing-home sales plunge

Existing-home sales fell 10.5% in November to an annual rate of 4.76 million units, the National Association of Realtors said, the slowest pace in 19 months and much worse than expected. Existing-home sales fell 3.8% vs. a year earlier. The median price rose 6.3% vs. a year earlier to $220,300. New mortgage disclosure rules appeared to delay existing-home closings, perhaps pushing some closings into November.

NAR also once again blamed a lack of supply for the weak housing sales figures. The number of existing homes for sales fell 3.3% to 2.04 million — down 1.9% vs. a year earlier. Tight supply and rising home prices should spur more activity from D.R. Horton (DHI), Lennar (LEN) and other homebuilders. Housing starts have not risen particularly fast, but did jump in November, with single-family starts and permits hitting their best levels in nearly eight years. Shares of D.R. Horton and Lennar rose in afternoon trading Tuesday.

The FHFA House Price Index rose 0.5% in October and 6.1% vs. a year earlier. The Federal Housing Finance Agency’s index covers single-family housing, using data provided by Fannie Mae and Freddie Mac.

U.S., Brent crude hit parity

U.S. crude futures and London-based Brent crude futures are now virtually the same, following Fri.’s end of the 40-year U.S. oil export ban. U.S. crude rose 1.2%, or 43 cents, to $36.23 a barrel intraday. Brent crude fell 7 cents to $36.28 after undercutting U.S. oil prices intraday. The U.S. shale boom meant bulging supplies in America. That benefitted refiners like Valero Energy (VLO), but meant lower prices for U.S. producers such as Continental Resources (CLR).

China’s leading economic index rose 0.6% after climbing 0.3% in October.

German import prices fell 0.2% in November after falling 0.3% in October. Prices slid 3.5% vs. a year earlier, a smaller drop than October’s 4.1% fall.

German consumer confidence rose, according to the forward-looking GfK Consumer Climate. It ticked up to 9.4 in January vs. expectations of no change from December’s 9.3.

COMING UP WEDNESDAY

MBA mortgage applications for the week of Dec. 18, 7 a.m. ET (prior: -1.1%).

Durable goods orders for Nov., 8:30 a.m. ET (forecast: -0.5%).

Personal income and outlays for Nov., 8:30 a.m. ET (forecast: income up 0.2%, spending 0.3%).

New-home sales for Nov., 10 a.m. ET (forecast: 503,000).

Consumer sentiment for Dec., 10 a.m. ET (forecast: 92).

EIA petroleum status report for the week of Dec. 18, 10:30 a.m. ET (prior: 4.8 mil barrels).

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