Economy Expands 2.6% in Q3; Pending Home Sales, Initial Unemployment Claims Drop

Real gross domestic product increased at an annualized rate of 2.6 percent in the fourth quarter of 2013. But the Pending Home Sales Index dropped to 93.9 from a downwardly revised 94.7 in January. Also, for the week ending March 22, initial unemployment claims were down by 10,000 from the previous week.

The Bureau of Economic Analysis reported on Thursday that real U.S. gross domestic product increased at an annualized rate of 2.6 percent in the fourth quarter of 2013. That’s the third and final estimate for growth during that quarter, and represents an upward revision from the second estimate, which had the economy growing at 2.4 percent.

Despite the uptick revision, the general picture of economic growth remains largely the same for the quarter. Personal consumption expenditures – government terminology for people out buying things — was larger than previously estimated, while private investment in inventories (businesses out buying things) and in intellectual property products were smaller than previously estimated.

In the third quarter of 2013, real GDP increased at an annualized 4.1 percent. The drop in real GDP growth between the quarters reflected a downturn in private inventory investment, a large decrease in federal government spending, drops in state and local government spending, and a downturn in residential fixed investment – lower home sales, that is. The rises in personal consumption expenditures, nonresidential fixed investment, and exports weren’t enough to make up the difference.

Pending Home Sales Continue to Drop

According to the National Association of Realtors on Thursday, its Pending Home Sales Index, which is a forward-looking indicator based on contract signings (but not closed), dropped to 93.9 from a downwardly revised 94.7 in January. That puts the index considerably below February 2013, when it was 104.9. The February 2014 reading is the lowest since October 2011.

NAR chief economist Lawrence Yun pinned some of the blame for the drop on the abysmal North American weather last month, but also was optimistic that the worst was behind the market. “Contract signings for the past three months have been little changed, implying the market appears to be stabilizing,” he noted in a statement.

The organization also forecasts that total existing home sales in 2014 will be at 5 million units this year, just below the nearly 5.1 million in 2013. Housing starts are projected to rise almost 19 percent in 2014, and reach about 1.1 million, which is closer to the underlying demand of 1.5 million. The gain in new home construction will reduce some of the pressure on home prices, with the national median existing-home price expected to rise between 5.5 percent and 6 percent this year, compared with an 11.5 percent jump in 2013, according to the NAR.

Initial Unemployment Claims Down

The U.S. Department of Labor reported on Thursday that for the week ending March 22, initial unemployment claims were at an annualized rate of 311,000, a decrease of 10,000 from the previous week. The four-week moving average was 317,750, a jumpier-than-usual decrease of 9,500 from the previous week.

Wall Street had another down day on Thursday, but not as much as the day before, with the Dow Jones Industrial Average off 4.76 points, or a slight 0.03 percent. The S&P 500 dropped 0.19 percent, while the Nasdaq lost 0.54 percent.