US 3rd quarter growth revised up, new home sales fall

US third quarter GDP growth has been revised up. MarketWatch reports:

The U.S. economy grew at a 2.2% annual pace in the third quarter, a bit faster than the 1.6% initially estimated, but down from the 2.6% in the previous quarter, the Commerce Department reported Wednesday in its first revision to the gross domestic product report.

Revisions came largely from greater building of inventories and lower imports than originally assumed. Business investment also grew more than first estimated, while consumer spending was slightly slower. Read the full government report.

The revisions drew mixed reactions from analysts.

The report "will go a long way toward marginalizing the market's recession fears," wrote economists for Action Economics on their Web site...

Because much of the upward revision was due to inventory growth, the implications for the fourth quarter's growth could be negative, wrote Joshua Shapiro, chief economist for MFR. "Growth in the fourth quarter looks to have gotten off to a soggy start."

The inflation rate was revised down slightly.

Meanwhile, a key measure of core inflation was revised a tenth of a percentage point lower, to 2.2%. Year-over-year growth in the core personal consumption expenditure price index was unrevised at 2.4%, thus remaining well above the Federal Reserve's implied target of 1% to 2%.

And there was better news for shareholders.

Corporate profits increased 4.2% at a quarterly rate, or $66.2 billion, in the third quarter, compared with a 1.4% gain in the second quarter. Profits were up 30.9% on a year-on-year basis, the fastest growth in 22 years, but the comparison came against the devastating impact that Hurricane Katrina had on profits last year.

The report also showed that wages and salary growth was much lower than expected in the second quarter. The revised estimates show real disposable incomes falling 1.5% in the second quarter, compared with a 1.7% gain previously reported. Real disposable incomes rose 3.7% in the third quarter.

Nigel Gault at Global Insight points out that the revisions to labour compensation implies less threat for price inflation, but "profits hit 12.4% of GDP in the third quarter, their highest share in nearly 56 years".

But the third quarter is now history. The Fed's beige book looks at more recent conditions. Again from MarketWatch:

Economic conditions have improved slightly over the past month, with increasing retail sales and cautious optimism about the holiday-shopping season, the Federal Reserve's latest survey of economic conditions found.

But the survey found that housing remains weak, a view supported by figures on new homes sales. MarketWatch reports:

Sales of new homes fell 3.2% in October to a seasonally adjusted annual rate of 1.004 million, the Commerce Department estimated Wednesday.

New-home sales are now down 25.4% in the past year...

Median sales prices were up 2% in the past 12 months to $248,500, reversing a trend toward falling prices year over year. Sales of houses priced less than $200,000 decreased by 16%.

Meanwhile, the number of new homes on the market dropped 0.7% to 558,000, marking the third straight decline. The inventory represents a 7-month supply at the current sales pace, up from 6.7 months in September; it peaked at 7.2 months in July.

Mortgage applications also fell last week, according to another MarketWatch report.

The number of applications for mortgages at major U.S. banks dropped 3.9% on a seasonally adjusted basis last week compared to the prior week, the Mortgage Bankers Association reported Wednesday.

Applications were also were down on a year-over-year basis, lower by 1.6%.

However, Calculated Risk points out that "seasonally adjusted purchase applications have moved up slightly over the last few weeks", although October new homes sales had been "another very weak report".

There are no fears about a weak housing market in the UK though. FT reports:

Mortgage approvals in October reached their highest level in nearly three years, the Bank of England said on Wednesday, further evidence that higher interest rates have as yet failed to derail the property market...

Total net lending to individuals...rose by £10.9bn last month...higher than the six-month average of £10bn, and means the total amount of debt outstanding is £1,268bn.

The Bank also said that growth in broad money supply, or M4, was up by 14.1 per cent year-on-year, a pace of increase it has made clear it finds unsettling.