Gross Domestic Product (GDP)
The Bureau of Economic Analysis (BEA) released its first estimate of third quarter 2011 Gross Domestic Product (GDP) last week. Real GDP growth rose at an annual rate of 2.5%, following growth of 1.3% in the second quarter of 2011. The increase was primarily the result of stronger consumption and nonresidential investment. Consumption increased at a 2.4% annual rate, up from 0.7% in the second quarter. Investment in equipment and software grew 17.4%, up from 6.2% in the second quarter.  The pace of structural investment slowed slightly, from 22.6% in the second quarter to 13.3% in the latest report. Residential investment rose 2.4%, down from 4.2% in the second quarter. Net exports rose 7.0% after growing 8.0% in the previous quarter. On balance, the latest report helped quell fears of another recession, at least in the immediate future. However we do not expect the pace of growth to accelerate in the remainder of the year and to only gradually increase a bit next year.

New Home Sales
New home sales rose 5.7% in September to a seasonally adjusted annual rate of 313,000 from 296,000 in August. Over the year sales are down 0.9%. The inventory of unsold homes was unchanged in September at 163,000 units. At the current sales rate the months’ supply is 6.2, down 0.4 from August. Median home prices dropped 3.1% in September to $204,400, from $210,900 in August. Over the year prices are down 10.4%. There is continued weakness in the housing sector and we are unlikely to see much improvement in the housing market this year. Despite the increase in sales this month the median price declined again and the housing market remains weak.

Durable Goods (Advance)
New orders for durable goods fell 0.8% in September after falling 0.1% in August. For the second consecutive month the decline was mostly the result of a fall in orders for motor vehicles and parts, which declined 2.7% in September. Core capital goods orders excluding aircrafts rose 2.4%, suggesting that there is some underlying strength in the economy. Shipments fell 0.7% following four consecutive increases while inventories rose by 0.1%. Unfilled orders increased 1.4%, up from 0.3% in August. Durable goods orders were a bit weaker than expected, but core orders we up again. We expect the pace of business investment to remain near its current level for the remainder of the year.

Personal Income
In September personal income rose 0.1% after falling 0.1% in August.  Real disposable personal income fell 0.1% in September following a 0.4% drop in August.  Real personal consumption expenditure growth surged 0.5% in September following no change in August. The price index for personal consumption expenditures rose 0.2% after a 0.4% increase in July. Over the year consumer prices are up 2.9%. Core PCE was unchanged in September and is up 1.6% over the year. The saving rate fell 0.5 percentage points to 3.6% in September. Despite the slowdown in savings and the surge in consumption, the latest report suggests we will see only modest gains in consumption in the last quarter of this year and into the new year.