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The Unexpected Strength of Third Quarter GDP Growth, Which was Revised up to 3.9% Annualized Rate from 3.5%, is Further Evidence the Economy is on the Verge of Finally Reaching Escape Momentum.

The unexpected strength of third quarter GDP growth, which was revised up to 3.9% annualized rate from 3.5%, is further evidence the economy is on the verge of finally reaching escape momentum.  Consensus had expected a nominal downward revision to 3.3%.  The past six months the economy has grown at its fastest pace in a decade.

Personal consumptions and business investment were both revised considerably higher thus suggesting the decline in oil prices may be benefitting the consumer and corporations are finally spending some of their massive cash hordes.

The data bodes well for a “three handle” for fourth quarter growth.

Some will comment about the unexpected decline in November’s consumer confidence and its implication to holiday shopping, however the data does not square well with University of Michigan sentiment survey, the drop in gas prices and the steady decline in weekly jobless claims.  A strong argument can be made yesterday’s confidence numbers is a one off event and will probably be revised higher.

It is widely accepted today’s growth does not feel like the strongest six month growth rate in 10- years.  I will argue this is the result of lack of stated inflationary pressures.  Real and nominal GDP are almost the same.  Typically nominal GDP is 275-300 basis points higher than real GDP thus giving the false impression that growth is greater than it really is.

Real GDP data is reported after subtracting the impact of inflation.

There was little market response with most attention focused upon the impending East coast snow storm and Thanksgiving holiday.

Speaking of Thanksgiving, there is so much we can be thankful for.  Yes there are injustices, but focus upon the positives not the negatives.  We are still living in the best country in the world.

Last night the foreign markets were mixed.  London was up 0.14%, Paris down 0.05% and Frankfurt up 0.55%.  Japan was down 0.14% and Hang Seng up 1.12%.

The Dow should open quiet ahead of reports on spending, home sales and durable good orders but trading is expected to be muted given the upcoming holiday and poor east coast weather.  The 10-year is unchanged at a 2.26% yield.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.