GDP Rises 2.5 Percent in Third Quarter Ending Short Term Recession Fears
On October 28, the Bureau of Economic Analysis (BEA) reported that real gross domestic product (GDP) increased at an annual rate of 2.5 percent in the third quarter of 2011 following a 1.3 percent rise in the second quarter. The increase in real GDP in the third quarter primarily reflected positive contributions from consumer spending, nonresidential fixed investment and exports. These gains were partly offset by negative contributions from private inventory investment and state and local government spending. Although overall GDP rose by 2.5 percent, state and local government continued to be a significant drag on GDP. Specifically, state and local governments subtracted 0.23 of a percentage point from the 2.5 percent annual pace of growth, which was the fifth quarterly decline in a row and the eighth in nine quarters. While the report seemed to put to rest any fears that economy would fall into a recession in the near term, many economists seemed to note that the trend of real GDP growth will be modest at best as the economy continues to struggle with the aftermath of the credit/asset price bubble. In addition, the 2011 economy benefited from a two percentage point cut in the payroll tax, a large boost in tax incentives for businesses to invest in capital equipment, and countless efforts by the Federal Reserve to boost growth, which may not be replicated in 2012. This uncertainty regarding future policy along with a significantly subdued housing market and the continuing slump of Europe and Japan could mean that the U.S. economy may remain on a slow growth track.

Link: BEA News Release

State Revenues Continue Growing
Last week, the Rockefeller Institute of Government reported that state tax revenues grew by 10.8 percent in the second quarter of calendar 2011 and by 8.4 percent in FY 2011. The growth in the second quarter marked the six straight quarter of growth and the strongest annual gain since 2005. State collections from personal income taxes showed a dramatic jump, rising more than 16 percent, during the second quarter, compared to the same period of 2010. This was the third straight quarter of double-digit growth in personal income tax revenues. Additionally, the report also noted that preliminary figures for July and August 2011 suggest continued, though less robust, growth in revenues. Overall, collections in 41 early-reporting states showed average gains of 6.8 percent compared to the same months of 2010. However, the report did note that the revenue forecast for states is further clouded by recent evidence of weakness in the national economy.

Link: Press Release

Housing Market Still Slumping
On October 25, S&P/Case-Shiller reported that their U.S home price index showed a rise in House prices in August, compared to July, but remain below August 2010 levels. Specifically, the 20-city home price index, posted a 0.2 percent increase from July but fell 3.8 percent from a year earlier. Boston, Charlotte, Chicago, Dallas, Minneapolis and Washington, D.C. posted monthly increases while 18 of the 20 cities posted annual declines in August, with just Detroit and Washington D.C. showing a increase over August 2010 levels. Las Vegas was the only city that posted a new index level low and is now 59.5 percent below its August 2006 peak.

Additionally, on October 27, the National Association of Realtors reported that pending home sales declined in September, although activity remains above a year ago. Specifically, their Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 4.6 percent to 84.5 in September from 88.6 in August but is 6.4 percent higher than September 2010 when it stood at 79.4.

Links: Housing Prices, Pending Home Sales

Consumer Confidence Declines in October
On October 25, the Conference Board reported that its Consumer Confidence Index, which had slightly improved in September, declined in October. The Index now stands at 39.8, down from 46.4 in September. Additionally, the Present Situation Index decreased to 26.3 from 33.3 while the Expectations Index declined to 48.7 from 55.1 last month. This is the six consecutive monthly decline for the Present Situation Index. Specifically, respondents claiming business conditions are "bad" increased to 43.7 percent from 40.5 percent, while those claiming business conditions are "good" decreased to 11.0 percent from 12.1 percent. Consumers' assessment of the labor market was also less favorable as those claiming jobs are "plentiful" decreased to 3.4 percent from 5.6. One piece of positive news was that the percentage of respondents who said that jobs are "hard to get" decreased to 47.1 percent from 49.4 percent.

Link: Press Release