Thursday we got another indication that the U.S. economy is returning to strong growth. The government’s first estimate for the third quarter came in at a 3.5 percent annual pace.

Again most economists were wrong. The consensus was for only a 3.2% jump. In fact several analysts had actually lowered their estimates yesterday . . . → Read More: Q4 Growth Likely to be Stronger than Q3]]>

Thursday we got another indication that the U.S. economy is returning to strong growth. The government’s first estimate for the third quarter came in at a 3.5 percent annual pace.

Again most economists were wrong. The consensus was for only a 3.2% jump. In fact several analysts had actually lowered their estimates yesterday in advance of the report.

The quarter was the first to experience the positive effects of emergency government stimulus programs put in place earlier in the year.

Growth in consumer spending and confidence, which accounts for about 70 percent of the economy, contributed significantly to the rebound.

Purchases of durable goods, which include autos, jumped 22 percent, the biggest increase since 2001. The governments $3B Clunkermania program obviously contributed significantly to that huge durable goods jump. But what was perhaps more encouraging was the data that showed that even excluding sales, production and inventories of automobiles, the economy grew 1.9 percent in the quarter. The stimulus programs are acting as a catalyst and not just the only source of growth.

Many economists now agree that the recession ended earlier in the year. As we have said for quite sometime, when the National Bureau of Economic Research officially marks the recession’s end, they will likely point to June 2009. And that prediction was made by professor Mark Hirschey back in November of 2008.

In the 3rd quarter, residential construction also jumped at a 23 percent annual rate. It was the first quarterly gain in almost four years and the largest jump since 1986.

The home-building market — which as be ailing for several years — surged as sales climbed, propelled in part by an $8,000 tax credit for first-time buyers. The credit (also part of the emergency stimulus past by the US government earlier this year) will likely be extended with the support of the majority of the Senate.

And Q3 earnings continue to be strong — pointing to not only moderate growth in Q3 — but extremely strong growth in Q4 and into 2010.

Amazon in particular has used the past year of recession to continue to decimate it’s brick and mortar competition. Amazon, which is reorganizing the retail market value chain continues to produce strong results. “You should see more expansion in the categories we’re in, as well as more geographical expansion over time,” said Amazon’s Chief Financial Officer Thomas Szkutak last Thursday.

In the overall manufacturing sector, total inventories in Q3 continue to drop precipitously. The only conclusion: factory production will need to keep pace with significant upward momentum.

As stockpiles decrease and demand continues to grow more factories will need to come back online quickly. The gains required to produce such output will now lead to a quick rebound in hiring.

In September, the unemployment rate likely reached it’s peak and with growth now ramping significantly in the 4th quarter, overall job growth is just around the corner.

You’ll remember that we warned back in August to not be surprised by robust Q3 growth. Don’t be caught off guard again with Q4 growth that will prove to be even stronger.

1. Personal income in April was reported to rebound sharply. Personal income jumped 0.5 percent in April far better than the forecast by most economists for a 0.2 percent drop. House investor’s rental income also spiked up 3.1 percent after several months of . . . → Read More: First Week of June Bursting Out with Good News]]> It was a week that was flush with positive news stories.

1. Personal income in April was reported to rebound sharply. Personal income jumped 0.5 percent in April far better than the forecast by most economists for a 0.2 percent drop. House investor’s rental income also spiked up 3.1 percent after several months of decline. The combination of higher overall income and cuts in personal income taxes from the Stimulus Act resulted in a 1.1 percent jump in disposable personal income after only a 0.1 percent rise in March. Year over year, personal income growth improved to +0.7 percent from +0.3 percent in March.

2. The ISM’s manufacturing report is moving incrementally just as we forecast here since March. Their index rose to 42.8 in May vs. 40.1 April. New orders were big news in the report. They rose above 50 for the first time in 17 months to indicate month-to-month stability for durable goods orders. Order backlogs are also improving and production was up more than 5-1/2 points in May over April.

3. Construction spending unexpectedly bounced in April. Construction outlays improved by 0.8 percent. The April gain also came in much better than most economist’s views. Most were wrong looking for a 0.8 percent decrease.

4. The Pending Existing-Home Sales index jumped a much sharper-than-expected 6.7 percent in the data for April.

5. The Challenger, Gray & Christmas, Inc. corporate job cut index continues to plummet. It is now down 55% since its peak in January.

6. NY Fed Treasury Spread Model continues to show significantly improving economic conditions. The New York Fed states that, “Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity.”

7. Payroll employment in May was unexpectedly and significantly less negative than in recent months. Initial and continuing claims for unemployment benefits are now both falling. We have now likely seen the worst of the jobs deterioration. The unemployment rate currently, might just well prove to be the high based on the confluence of this week’s positive employment data.