Consensus expectations are for an accelerated pace of GDP growth in 3Q10 to 1.9% from the 1.6% posted in 2Q10.  As an aside, on September 30th, the Department of Commerce will report the second revision to 2Q10 GDP and the expectation is for the growth to hold steady with annualized quarterly growth of 1.6%, according to Bloomberg.


While the durable goods data on Friday sparked a 2% rally in the S&P 500 on Friday, the MACRO data from last week continues to point to a sequential slowdown in 3Q10 GDP growth. 


On the housing front; existing home sales, new home sales, housing starts and building permits are now declining year-over-year and quarter-to-quarter.  The biggest quarter-to-quarter decline is coming from existing home sales followed by new home sales, down 28.5% and 14.3% respectively.  Building permits, and indication of future demand, is down 4.1% quarter-to-quarter.




New orders for durable goods is also seeing a sequential slow down quarter-to-quarter of 0.3%, while still growing year-over year.  While the durable goods number missed overall expectations, when transportation and aircraft were stripped away it beat.




Moving to this week and today’s news, the Dallas Fed Manufacturing Index came at -17.7, on expectations of -6.0 and compared to -13.5 previously.  In addition, U.S. economic activity, according to the Federal Reserve Bank of Chicago fell in August to -0.53 versus -0.11 in July. 


The MACRO forces sending the S&P 500 (+9.43%) in September, don’t correlate with Gold (+4.8%) and the dollar getting hammered (-4.28%).  Bond yields also suggest that the state of the economy may not be as strong as many investors believe (or hope).  With the US economy continuing to weaken, the only option for the Federal Reserve to ensure stocks do not slump is to aggressively add liquidity to the system.    


Howard Penney

Managing Director

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