The economy grew at better than a 3% annual pace in both the second and third quarters last year. Did it score a hat trick in the fourth quarter, taking another step toward President Trump’s promise of 3% growth for a full year (assuming his agenda is carried out)? Quite possibly, economist says. The week’s economic news also features reports on home sales and business investment.
Existing home sales spiked in October and November on pent-up demand after hurricanes in Texas and Florida suppressed activity in September. But that rebound likely petered out in December, says Nomura economist Lewis Alexander. And home sales, he notes, remain constrained by supply shortages. Economists estimate the National Association of Realtors will report Wednesday that existing home sales fell 2.4% last month to a seasonally adjusted annual rate of 5.7 million.
It’s a similar story for new home sales, which shot up an eye-popping 17.5% in November amid a rush of buyers who couldn’t close deals after the hurricanes hit. Strong job and income growth should continue to propel the sale of newly- built homes, but a fall from November’s sizzling pace is likely in the near term. Economists expect the Commerce Department on Thursday to announce a 7.9% drop in new home sales for December to a seasonally adjusted annual rate of 675,000.
The economy expanded at a 3.1% annual pace in the second quarter and 3.2% in the third quarter, mostly on robust consumer and business spending. That marked the best six-month stretch since 2014 and soundly beat the tepid 2.1% average during the 7 ½-year-old recovery. Consumers have opened their wallets in response to solid job and income gains, record-high stock prices and cheap gasoline. And businesses are investing more after a long lull as worker shortages prompt purchases of labor-saving equipment.
Meanwhile, the Republican tax cuts and Trump’s sweeping rollback of business regulations have created expectations for stronger profits. The sturdy consumer and business spending was likely sustained in the fourth quarter while rebuilding efforts in the hurricane-stricken regions fueled a rebound in housing starts, Alexander says. But he expects a slowdown in business stockpiling after an aggressive inventory build-up in the third quarter. All told, economists expect Commerce on Friday to announce that the economy grew at a 3% annual rate in the last three months of 2017.
A more recent reading of business investment can be found in Commerce’s report on orders and shipments of durable goods such as computers, cars and airplanes. Capital goods orders excluding aircraft and defense — a proxy for business investment — generally have increased solidly in recent months. Economists are looking for another strong 0.5% rise in that measure for December.
