See this week's numbersFriday, October 28, 2016

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Growth doubled, but is it enough?

The U.S. economy grew 2.9 percent in the third quarter, more than double the growth rate during the second quarter and even better than expectations. The average growth rate for year-to-date 2016 is 1.7 percent, the lowest rate and the first time below 2.0 percent since 2012. Most of the growth came from a surge in exports, increasing 10 percent. Consumer spending contributed positively to growth but at a much slower pace than in the second quarter, 2.1 percent versus 4.3 percent. Factors subtracting from growth include a 2.3 percent rise in imports and the fourth quarterly decline in corporate equipment spending, down 2.7 percent. The initial estimate for growth looks promising at first glance, but the non-response from the financial markets tells the truth – most of us are expecting the data to be revised a couple of times. Even with this strong report, the economy continues to be moving forward in a very sluggish pattern.

Other Key Indicators this Week:

Housing – This week’s data on the housing industry was a welcome relief over last week’s dismal housing starts report. Both pending and new home sales increased in September. Pending home sales rose 1.5 percent, led by a 4.7 percent increase in the West. Contract signings are up 2.0 percent over September 2015. New home sales increased 3.1 percent to a 593,000 pace, close to a nine-month high. The recent pop in sales, while a good sign for the industry, is further exacerbating short supply. Inventory of homes shrank to 4.8 months from 5.8 months a year ago. Overall, home prices continue to inch up, rising 0.2 percent in August for a 5.3 percent increase over a year ago.

Durable Goods – Orders for goods meant to last longer than three years fell 0.1 percent in September after increasing 0.3 percent in August. The decline was just slightly lower than expected and doesn’t cause much concern by itself. The real concern in the report was the 1.2 percent decline in non-defense capital orders excluding aircraft. This measure is considered a proxy for future business investment. The decline in September was the largest drop in seven months and wipes out the 1.2 percent increase in August. Shipments of all orders rose 0.8 percent in September, while inventories increased 0.1 percent. As stockpiles remain high and orders decline, the outlook for manufacturing activity remains dim.

Consumer Confidence –
The Conference Board's index of consumer confidence fell to 98.6 in October, versus the prior reading of 103.5. This was the first measure under 100 since July. The data suggests household confidence has corrected after the outsized increase the previous month. The three-month moving average is 101.3, consistent with solid consumer sentiment and constructive for consumer spending in the fourth quarter.

Between the Numbers:

As if the presidential elections aren’t scary enough this year, keep this in mind. Americans spend more for Halloween during a presidential election cycle. This year spending is expected to reach an all-time high, roughly $8.4 billion during October. Political costumes are the third most popular costume among adults over the age of 35. With the controversial nature of the presidential election, 10 percent more adults are planning to dress up than in 2015. It's unclear whether a connection exists; the superhero is the number one costume for children this year, beating out the long-reigning princess.

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.

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