While last week GDP growth came in better than expected at 3.5%, which was a very welcome development, there was very little change in the coverall shape of GDP. This is a troubling development for the long term. GDP is the sum of spending by the Consumer, Private Investment, Government Spending and Net Exports. The Graph below shows the percentage each of them has contributed to overall GDP since 1947. The Consumer is still by far the dominate force in the economy, and it is becoming more so. In the 3Q, PCE, meaning the consumer, rose to 70.98% of GDP, up from 70.66% in the second quarter. That is an all-time record high. At the same time, private investment was virtually unchanged near an all-time low as a share of GDP at 11.04%, up from 11.03% in the 2Q. Government spending as a share of GDP ...

Durable Orders increased by 1%, $1.6 billion, during September to $165.7 billion, in line with the expected 0.9% gain, following a 2.6% decrease in August and a 4.8% increase in July.  Machinery had the largest increase, by 7.9%, $1.7 billion, to $23.4 billion, and had been up five of the last six months.  Over the past 12 months, Durable Orders have dropped by 24.1%.

New Home Sales for September are expected today at 10:00 AM EST to increase to a 437,00 annual pace, following an increase of 0.7% in August to an annual pace of 429,000 homes with a median sales price of $195,200 and an average sales price of $256,800.

Upcoming Releases Initial Claims (10/29 at 8:30 AM EST) GDP-Q3 Adv (10/29 at 8:30 AM EST) Personal Consumption Expenditures (10/30 at 8:30 AM EST)

Zacks Investment Research

The S&P/Case-Shiller 10-City Home Price Index increased by 1.3% in August following an increase of 1.7% in July, and up 1.4% in June.  Over the year, the index has fallen by 10.6%, less than the 12.8% 12 month decline observed in July.  The S&P/Case-Shiller 20-City Home Price Index increased by 1.2% over the month after increasing by 1.6% in July, up 1.4% in June, and a 0.5% increase in May.  The index is down by 11.3% over the year compared to a 13.3% decline last year.  This is the 7th consecutive month the indices have improved.  19 of all 20 indices showed improvements in the annual decline, with Cleveland as the exception.

The Consumer Confidence Index dropped to 47.4(1985=100) in October after dropping to 53.4% in September from 54.1% in August.  The index was expected to increase with the consensus at 53.6%.  The Present Situation Index decreased

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Whoever would have thought that some people once called economics the most dismal of sciences? Certainly, as the current crisis goes on and on, those of us who consider ourselves to be economists scarcely are able to find the time to squeeze in a dull moment, even here and there. But even at a broader level, interest in that most dismal of dismal topics - the theory and practice of central banking - seems now to fire up levels of enthusiasm here in Spain that make even the appetising prospect of a forthcoming Real Madrid-Barça football match pale in intensity. Even if it is the case, I have to admit, that the everyday Johnny (or Jill) come lately sitting in the bar still - truth be told - prefers the sports columns of the daily newspapers, or the lacivious details of the latest romantic adventure of one of the rich ...

Whoever would have thought that some people once called economics the most dismal of sciences? Certainly, as the current crisis goes on and on, those of us who consider ourselves to be economists scarcely are able to find the time to squeeze in a dull moment, even here and there. But even at a broader level, interest in that most dismal of dismal topics - the theory and practice of central banking - seems now to fire up levels of enthusiasm here in Spain that make even the appetising prospect of a forthcoming Real Madrid-Barça football match pale in intensity. Even if it is the case, I have to admit, that the everyday Johnny (or Jill) come lately sitting in the bar still - truth be told - prefers the sports columns of the daily newspapers, or the lacivious details of the latest romantic adventure of one of the rich ...

Short-Term Deficits Pale in Comparison to Unfunded Liabilities on the Horizon

Dwindling U.S. economic activity and accelerating government spending resulted in a record $455 billion federal budget deficit for fiscal year 2008. During the same trying period, the total national debt increased to about $10 trillion, and the forecast for 2009 was for an even larger deficit and more government borrowing.

As the numbers continue to escalate, how can we put the magnitude of the current national debt in perspective? Are there risks involved when government pushes the payment of its obligations into the future? And could it be that government action to reform entitlements such as Social Security and Medicare is all but imminent?

It’s All Relative

To better comprehend the size and scope of the national debt, it helps to measure it against the size of the overall economy. At $10 trillion in 2008, the national debt represented 69.5% of gross domestic

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This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.

• Martin Wolf (Financial Times): The rumours of the dollar’s death are much exaggerated, October 13, 2009. Recent figures have proved that the dollar’s fall is a symptom of success, not of failure. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.

• E.S. Browning (The Wall Street Journal): Dow at 10000 as crisis ebbs, October 14, 2009. The Dow Jones Industrial Average surged to 10015.86, passing the symbolic 10000 level much faster than expected and racking up a 53% gain in just seven months. Wednesday’s trading marked the first time the Dow touched 10000 since October last year, when markets were unraveling after the collapse of Lehman Brothers

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By Cees Bruggemans, Chief Economist FNB

The forces arraigned against the Rand are rather formidable and no collapsed corporate deals seem to matter too much. The Rand is rising and will rise.

Pushing the Rand higher are the major central banks at the global centre (New York, Frankfurt, Tokyo, Zurich, London), keeping interest rates near zero and encouraging outward liquidity leakage towards faster growing and still outperforming yield destinations in the global periphery.

Pulling the Rand higher are a smattering of central banks located in the global periphery as they start increasing their rates, led by the Bank of Israel two weeks ago, but last week followed by the Reserve Bank of Australia, with others expected to follow serially in coming months.

With their growth reviving, small output gaps, house prices and employment rising and industrial activity recovering, these central banks are uncomfortable with their too low interest rates imposed during

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By Cees Bruggemans, Chief Economist FNB

These are dynamic times in which few things remain the same for long. What surprises could await us these next six to twelve months?

Externally, there has been plenty of warning of a long period of near zero interest rates at the global centre (America, Europe, Japan) while growth and yield remains most attractive in the periphery (Asia, Latin America, other Middle Eastern and African commodity producers).

These past six months this condition has pushed global equity and bond prices higher, while favouring a steady liquidity leakage from the global centre to the periphery, giving many emerging asset markets a double leg-up while also firming their currencies.

The main likelihood for the next twelve months (or longer, bearing in mind the evolving nature of the shaping global expansion) is that these processes will continue. By implication expect more asset price gains, especially in

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In August, the monthly trade deficit fell to $30.7 billion from $31.9 billion in July. We got improvement from both sides as exports rose by $0.2 billion to $128.2 billion and imports fell to $158.9 billion from $159.8 billion in July, a decrease of $0.9 billion. This reverses two months where the trade deficit rose slightly. On the other hand, over the last year the trade deficit is down dramatically. A year ago our imports were $63.6 billion higher than now, at $222.6 billion, and our exports were $33.4 billion higher at $161.7 billion, resulting in a deficit of $60.9 billion. While the year-over-year improvement in the trade deficit is very good news, the reason for it is not so good. It was a refection of the overall collapse in world trade, something that makes everyone poorer. As far as the GDP calculations are concerned, it does ...