INDICATOR: Revised Third Quarter GDP and Jobless Claims
KEY DATA: GDP: 3.6% (up from 2.8%); Jobless Claims: 298,000 (down 23,000)
IN A NUTSHELL: "While we may not again see GDP growth this strong soon, the improving labor market clearly points to strong economic growth going forward."
WHAT IT MEANS: Really, things seem to be coming together. Jobless claims broke the magical 300,000 level, a pace that you only see consistently when job growth is really strong. I don't expect we will stay here as the labor market has not shifted gears completely, but the process is well under way. Indeed, the Challenger, Gray and Christmas November layoff numbers were down from last November. Of course we were in the midst of a major political battle last November so maybe we should discount that a little. Still, layoffs are not accelerating and as long as hiring is picking up, which seems to be the case, job gains should be strong. The key will be economic growth and the revisions to growth during the summer were sharp. Unfortunately, the details were not as upbeat as the headline. Much of the upward revision came from firms adding a lot more to their inventories than initially estimated. Indeed, nearly half the total gain came from the inventory build. The likelihood is that will reverse itself this quarter and next. Excluding inventories, final sales were up only 1.9%, which may be a better indicator of underlying strength. Also, consumer spending was revised downward a touch. Households are hitting the malls and dealerships but spending on services, which is two-thirds consumption and 45% of the entire economy, was flat. That needs to change before we can get to strong growth, something I have said many, many times. There was good news for businesses as corporate profits were quite strong once again. Cash flow soared.