LIVE MARKETS-Visions of sugarplums: GDP, consumer confidence, durable goods, industrial output

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VISIONS OF SUGARPLUMS: GDP, CONSUMER CONFIDENCE, DURABLE GOODS, INDUSTRIAL OUTPUT

With just two days until the fat man invades their homes and eats their cookies, investors had the gift of economic data shoved down their chimneys on Tuesday.

The U.S. economy grew at a 4.3% quarterly annualized rate in the third quarter, blasting past the 3.3% consensus.

It's good news, but also ancient history; this report accounts for the three-month period that ended just before the longest-ever government shutdown; it should have been released two months ago.

A drill-down into the Commerce Department's first stab at third-quarter GDP USGDPA=ECI reveals that imports - a GDP detractor - pulled back by 4.7%, a symptom of higher tariffs. Exports, on the other hand, surged 8.8%, with an assist from a weakening dollar.

Taken together, trade contributed 1.59 percentage points to the total.

Business investment in equipment grew by 5.4%, reflecting the AI infrastructure rush, while outlays on residential structures dropped 5.1%, yet another confirmation of softness in the housing market.

Federal government outlays grew by 2.9%.

"If the economy keeps producing at this level, then there isn’t as much need to worry about a slowing economy and concerns may actually flip back to the price-stability constraint," says Chris Zaccarelli, chief investment officer at Northlight Asset Management.

As usual, consumer spending - which accounts for about 70% of the U.S. economy - did much of the heavy lifting, accelerating to 3.5% from the prior quarter's 2.5% growth.

Expenditures on durable goods decelerated while non-durable goods added some momentum; spending on goods contributed a combined 0.66 percentage points to the headline. But spending on services provided the biggest boost, growing 3.7% and adding 1.74 ppts to the total.

Those things combined, the American consumer is responsible for 2.39 pps of the third quarter's total 4.3% GDP growth.

The report reflects "strong gains in consumer spending, particularly on services," writes Michael Pearce, chief U.S. economist at Oxford Economics. "Most of that is driven by recent wealth gains, with real disposable incomes essentially flat on the quarter."

"The K-shaped consumer is alive and well," Pearce adds, referring to the ongoing bifurcation of the haves versus the have-nots.

Speaking of the consumer, more contemporary data from the Conference Board (CB) shows the consumer's mood unexpectedly darkened this month.

CB's consumer confidence index USCONC=ECI shed 2.2 points to land at 89.1, or 2.1% gloomier than analysts' expectations.

Survey participants' assessment of present conditions deteriorated by 7.5%, while near-term expectations held firm.

"Despite an upward revision in November related to the end of the shutdown, consumer confidence fell again in December and remained well below this year’s January peak," says Dana Peterson, CB's chief economist. "Consumers’ write-in responses on factors affecting the economy continued to be led by references to prices and inflation, tariffs and trade, and politics. However, December saw increases in mentions of immigration, war, and topics related to personal finances—including interest rates, taxes and income, banks, and insurance."

All that sounds a tad dire, but data geeks will find comfort in the narrowing gap between the present situation and expectations. A wide gap between the two metrics is often a harbinger of recession.

In addition to GDP, the diligent Commerce Department also found time to release its October durable goods report.

It showed new orders for long-lasting, U.S.-made goods USGDN=ECI dropped by 2.2% two months ago, sliding right past the shallower 1.5% decrease predicted by economists, and marking a sharp reversal from September's upwardly revised 0.7% growth.

As is often the case, aircraft was largely responsible for the turbulence.

Digging into the report - which covers everything from air fryers to attack drones - commercial and defense aircraft orders dropped by 20.1% and 32.4%, respectively. Striking transportation-related items, new orders actually logged an 0.2% gain. Eliminating war machinery from the mix, they fell by a shallower 1.5%.

Orders for computer-related goods rose at a robust 2.7%, again pointing to the AI rush and mitigating the overall drop.

Core capital goods - which exclude aircraft and defense items and is considered a barometer of U.S. corporate capex plans - increased by 0.5%, an abrupt slowdown from September's 1.1% increase, but a hair stronger than the 0.4% advance economists predicted.

In less gloomy news, industrial production USIP=ECI eked out a 0.2% increase last month, a minor reversal of October's 0.1% loss.

The Federal Reserve's report combined October and November data in another shutdown echo.

Peeking under the hood, a 1.2% drop in auto production kept the gains muted while a 1.7% increase in mining output contributed to the upside.

Manufacturing output was unchanged.

Capacity utilization, a measure of economic slack, tightened ever-so-slightly to an even 76.0%.

"Manufacturing is surviving rather than thriving," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "While depressed capex intentions suggest demand for capital goods outside of AI-related sectors remains relatively weak."

"The boost to US manufacturing from tariffs, due to reduced foreign competition, seems like it is being offset by drags from higher costs for imported inputs and elevated uncertainty around future trade policy," Allen adds.

The Commerce Department's New Home Sales combined September/October report has been delayed to January 13, as a result of the government shutdown.

Here's a list of data delays to peruse while you sip your egg nog.

(Stephen Culp)

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