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Economic Update

September 29, 2014

Economic themes: Geopolitical, GDP, Personal Income & Outlays, Housing, Durable Goods.

• Geopolitical: Adding another tool to the geopolitical risk quiver, residents in Hong Kong are protesting in hopes to move towards a more democratic state. Hong Kong currently benefits from free speech and civil liberties, although under an authoritarian regime. China has pledged to give Hong Kong universal suffrage beginning in 2017, but the legislature recently ruled that any candidate would have to be screened through a committee, which is essentially being viewed as a Beijing power grab. Meanwhile, President Obama stated on 60 Minutes the U.S. intelligence agencies underestimated the threat from Islamic State militants, and overestimated the Iraqi Army’s ability to combat them.
• GDP: Q2 Gross Domestic Product growth was revised upward to 4.6%, in line with expectations, with strength seen in inventories, exports, residential investment, and personal consumption. Chain-weighted prices increased by 2.1%, also in line with expectations. The figures confirmed the strong rebound in the second quarter, after a weak first quarter impacted by adverse weather conditions.
• Personal Income & Outlays: Personal income increased by 0.3% in August, and personal spending increased by 0.5%, with strength seen in the durables component. The PCE price index was unchanged for the month, and is up 1.5% over the past year. The figures demonstrate a moderately healthy consumer, benefiting from declining gas prices.
• Housing: Pending home sales fell by 1% in August to a 104.7 reading, compared to a forecast of a 0.8% gain, and is down 2.2% over the past year. The market is being held back by a decline in investors, a lack of first-time buyers, fewer distressed sales, and the prospective impact higher mortgage rates could have. New home sales surged 18% in August to a 504k unit pace, though the figure has been rather volatile.
• Durable Goods: Coming off of a surge in July aircraft orders, durables declined by 18.2% in August, compared to expectations of a 17.1% decline, although are up 8.9% over the past year. Transportation led the declines, with strength seen in fabricated metals, machinery, and electronics. Despite the decline in transportation, the figures bode favorably for manufacturing.
• Economic highlights for the week ahead:

o Tuesday, 9/30/2014: S&P Case-Shiller HPI.
o Wednesday, 10/01/2014: ISM Mfg Index.
o Friday, 10/03/2014: Employment Report, International Trade.

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