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Best Growth Spurt in Three Years

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The economy grew at 3.3 percent in the third quarter, an improvement from the original estimate of 3.0 percent. This is the fastest pace of quarterly growth in three years. The bulk of the increase came from the business sector. Business equipment spending increased 10.4 percent, the best performance since 2014. Consumer spending was revised 0.1 percent lower to 2.3 percent, down from 3.3 percent in the second quarter. Even with the slowdown, consumer spending remains the single largest contributor to overall GDP, adding 1.6 percent to the index. Residential structures, i.e., housing, declined for the second quarter. Most economists are expecting growth to subside to 2.5 percent in the fourth quarter.

Other Key Indicators this Week:

Housing – New home sales rose 6.2 percent, and pending home sales increased 3.2 percent in October, both measures stronger than expected. Much of the gains stemmed from pent-up demand after the hurricanes. New home sales rose for the third month in a row in the south for the fastest pace in a decade. Yet, of the total new homes sold, over a quarter of a million have not broken ground. This is the highest level since 2007. The delay is due to a lack of skilled construction workers. Once builders can find enough workers, we should experience a boom in construction activity. The supply of homes remains low in all categories, pushing prices higher. The national home price index increased 6.2 percent from a year ago, the largest increase in over three years.

Spending – After surging 0.9 percent in September due to hurricane recovery, spending resumed at a more moderate pace in October, rising 0.3 percent. Durable goods spending, which includes autos, fell 0.1 percent. The good news, especially as we approach the holidays, is that personal incomes rose 0.4 percent in October, matching the increase in September. The core PCE rate year-over-year, a measure the Fed uses to gauge inflation, came in at 1.4 percent for the second month in a row.

Confidence – Consumer confidence surged to 129.5 this month, the strongest reading in 17 years. The expectations gauge rose more than four points to 113.3, also the best level since 2000. The increase is likely due to consumers’ hopes for lower taxes, as well as a positive outlook on the availability of jobs. The high level of confidence should bode well for the holiday shopping season.

Strategically for Credit Unions:

Loan balances are growing at a faster pace at credit unions than at banks. Loans made by credit unions increased 10.9 percent at the end of second quarter over the previous year. Bank lending was up 3.7 percent in the same period. While lending remains strong at credit unions, eking out higher net interest income is becoming a challenge as the yield curve continues to flatten.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.