Gross Domestic Product (GDP)
The Bureau of Economic Analysis (BEA) released its second estimate of third quarter 2011 Gross Domestic Product (GDP) last week. Real GDP growth was downwardly revised from 2.5% to an annual rate of 2.0% following growth of 1.3% in the second quarter of 2011. The revision was primarily the result of weaker consumption, business investment, government consumption, and especially inventory investment. Consumption increased at a 2.3% annual rate, up from 0.7% in the second quarter. Investment in equipment and software grew 15.6%, up from 6.2% in the second quarter.  The pace of structural investment slowed slightly, from 22.6% in the second quarter to 12.6% in the latest report. Residential investment rose 1.6%, down from 4.2% in the second quarter. Net exports were upwardly revised to 15. 7% from 7.0%, after growing 8.0% in the previous quarter. On balance, the latest report is still consistent with an economy that is not in a recession. However we do not expect the pace of growth to accelerate much in the remainder of the year and to only gradually increase a bit next year.

Existing Home Sales
Existing home sales rose 1.4% in October to 4.97 million annualized units from 4.9 million in September. Over the year sales are up 13.5%. The inventory of unsold homes decreased 2.2% to 3,330,000 from 3,406,000 in September. At the current sales rate the months’ supply is 8.0, down from 8.3 in September. Median home prices fell 2.0% to $162,500 from $165,800 in September. Over the past year prices are down 4.7%. Sales of existing homes remain weak and there is little positive momentum.

Personal Income
In October personal income rose 0.4% after rising 0.1% in September.  Real disposable personal income rose 0.3% in October following a 0.1% drop in September.  Real personal consumption expenditure growth rose 0.1% in October following a bigger 0.5% jump in September. The price index for personal consumption expenditures fell 0.1% after a 0.2% increase in September. Over the year consumer prices are up 2.7%. Core PCE rose 0.1% in October and is up 1.6% over the year. The saving rate increased by 0.2 percentage points to 3.5% in October but remains below recent highs. The increase in income did not translate into much addition spending, suggesting that we will see only modest gains in consumption in the last quarter of this year and into the new year.