GDP REVISED UPWARD, PRICE DEFLATOR UNCHANGED

YEAR-TO-YEAR NEW HOME SALES DECLINE

WEEKLY JOBLESS CLAIMS RISE AGAIN

Today the Commerce Department took its second of three hacks at the number for the second quarter growth in the Gross Domestic Product (GDP). Based on additional data collected since last month, Commerce reckoned the best current estimate was 4.8 percent. This compares with the previous growth estimate of 4.2 percent.

The Q2 number is almost twice the rate that's generally accepted as the Fed's target growth rate. This sparked another round of speculation about whether the Fed would soon raise short-term interest rates. But, the Fed's primary mission is to fight inflation, and today's report revealed that inflation, as reflected by the GDP implicit price deflator, was still not a problem. This month's estimate for the deflator was unchanged from the previous estimate: a modest 1.8 percent -- even lower than the 2.2 percent reading for the first quarter.

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Elsewhere in the Commerce Department, the Bureau of the Census and the Department of Housing and Urban Development announced that sales of new one-family houses rose by 7.9(+/-11) percent from June to July. 7.9 percent is a pretty big number; but, its still less than the statistical uncertainty of the measurement. So, regardless of the big fuss over this number in the popular financial press, it is a meaningless reading.

Last month I suggested that we look to the year-to-date figures for a better definition of what's going on in new home sales. The year-to-date numbers, probably because they cover a longer time period and contain up-to-date revisions of past month's data, typically have an uncertainty of only plus or minus 2 or 3 percent. Last month we found that, for the first five months of 1996, sales exceed the same period in 1995 by 22.9 percent. For the first six months, 1996 exceeded 1995 by 18.9 percent. In this month's report we find that year-to-date sales were 14.4 percent higher than last year. So, even though the year-to-date period is lengthening by a month every month, the gain with respect to the same period last year has been declining.

Then there's the recent report by the National Association of Home Builders that shows that potential-customer traffic and current sales at new home sites has been falling off.

So, we don't need to get all excited and conclude that today's reported month-to-month home sales figures mean that the economy is becoming dangerously overheated.

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Finally, today the Labor Department reported that new claims for state unemployment insurance rose by 4,000 in the week ending August 24. This was the fourth consecutive weekly rise. The more-meaningful four-week moving average of new claims rose by 9,250 in the same period -- the second successive rise.

Today's release also reported that the total number of people receiving unemployment benefits in the week ending August 17 was 2.525 million -- up 19,000 from the preceding week. This followed a rise of 55,000 in the week ending August 10.

Once again the jobless claims data is telling us that it is becoming harder for workers to find and keep jobs -- evidence that economic activity has slowed in recent weeks.

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Summing up: Today's reports revealed that GDP growth was brisk in the second quarter -- no news there. More important, the growth rate of the GDP implicit price deflator actually declined. If we look behind the new home sales headlines we find that sales are slowing. And, recent jobless claims data indicate that the economy as a whole is slowing.

If they had been carefully considered, today's news reports should have caused little concern regarding inflation. But, careful consideration was not a factor in today's market action. Bond traders saw a couple big numbers and drove the 30-Year T-Bond down 23/32, forcing the yield up to the 7.04 level. As usual, stock traders broke their necks trying to beat the bond traders to the exits, knocking down the DJIA by almost 65 points.