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The economy is humming along

It has been two years since the U.S. economy had back-to-back quarters of three percent or more growth. Until now. The economy grew 3.0 percent during the third quarter, after expanding 3.1 percent in the second quarter. Analysts had been bracing for a slowdown due to the impact of Hurricanes Harvey and Irma, but it appears the recovery activity in September may have actually sparked some growth. Consumer spending increased 2.4 percent, driven mostly by auto sales, as people were forced to replace storm-damaged vehicles at a rapid pace. The real impetus for the growth came from the business sector. Overall business investment jumped 3.6 percent. Investment in equipment rose 8.6 percent, for the fourth consecutive quarter of growth. The strength coming from the business sector reflects growing optimism about the condition of the U.S. economy, likely due to impending tax reform, continued consumer appetite and a strong labor market.

Other Key Indicators this Week:

Housing – The data this week gave another mixed review of the housing industry. The gauge for pending home sales fell to its lowest level since January 2015, while the seasonally adjusted annualized rate of new home sales increased to its fastest pace in a decade. The distortions are primarily a result of hurricane recovery activity in the South, but a lack of homes to buy also continues to hamper sales. The supply of homes on the market is 6.4 percent lower than September 2016. Pending home sales, or the measure of contracts signed, were down 3.6 percent in September from a year ago. Sales in the south, down 2.3 percent, were held down in the aftermath of Irma, while the other regional areas posted slight gains. At the other end of the scale, sales of new homes surged 18.9 percent. Once again, activity in the South was a big portion of the report. The South posted an unusually large increase of 25.8 percent, as potential homeowners scrambled to buy homes as soon as they became available. The number of completions rebounded by 4.6 percent after falling 11.5 percent the previous month.

Manufacturing – Several reports this week highlighted strength in the manufacturing industry. Orders for durable goods rose 2.2 percent in September. Core orders, which subtract transportation and defense orders, were up 1.3 percent, the third monthly increase. Inventories of goods climbed 0.6 percent, the most in over two years – another sign of growing optimism among businesses. The Kansas City Manufacturing Index rose to 23 in September, the highest mark since 2011. The Richmond FRB Manufacturing Index fell to 12 in September, but remains well above zero, the dividing line between contraction and expansion.

Strategically for Credit Unions:

Bond yields took another step up this week amid good third quarter corporate earnings and signs that Washington is closer to finalizing a budget and tax reform. There is a 90 percent chance for a rate increase in December and a 94 percent chance for another move in March 2018. We should know who the next Fed Chair will be by next week.

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.