On the heels of a succession of data issuances yesterday, which essentially were mixed, the U.S. Department of Commerce has issued one of the more widely anticipated and closely watched reports this morning. Specifically, Commerce released figures showing that the nation's gross domestic product had advanced by 2.8% in the October-through-December period. That rate of growth was the best of the year; however, it was also a bit shy of the presumptive rate of gain, which had been targeted at 3.0%.
As noted, this key report, the first of three such GDP issuances for the fourth quarter of 2011 (the other two, which will be revisions, will follow in late February and late March, respectively), comes on the heels of a quartet of releases made yesterday. Here, reports were put out showing a strong 3.0% gain in durable goods orders, an in-line report on weekly jobless claims, a slightly lesser rate of gain for the leading indicators, and a disappointing issuance on new home sales for December.
In this morning's report, the government noted that GDP gained 2.8% in the final three months of last year. That rate of growth topped the increases for the first three quarters of 2011, which were, respectively, 0.4%, 1.3%, and 1.8%. The latest quarter, meantime, produced the best performance in a year and half and suggested that the economy was gaining a nice amount of forward momentum as the year closed. (By definition, the nation's gross domestic product, or GDP, is the value of all goods and services produced at home, plus goods exported off shore, minus goods imported into this country.)
The solid close completed a year, in which GDP increased by a ho-hum 1.7%. That was just over half the 3.0% rate of improvement inked in 2010. One encouraging sign for continued growth, meanwhile, was the fact that consumers continued to step up to the plate when it came to spending in the quarter. Here, such expenditures increased by 2.0% in the period, which was ahead of the 0.7% pace in the second quarter of last year and the 1.7% rate of increase in the September period. Also helping growth in the latest three months was a further restocking of inventories. Inventories had been pared back over the summer when there were rising fears of a new recession in this country. With those concerns abating, there was a logical effort to rebuild depleted stocks.
However, such rebuilding also means that many sellers of goods may now have somewhat bloated inventories. There thus could be a tendency to now want to draw down those stocks. That is one reason we sense that growth in the current quarter will slow to around 2%. Also worrisome is the fact that business investment slowed in the quarter, gaining 1.7% following an increase of better than 15% in the July-through-September interim. Also, governments continued to pare expenditures, as many states and localities make concerted efforts to balance their budgets. The same applies to the Federal Government, which, too, has been on a spending spree in recent years, as it tries to counter the sluggish aftermath of the worst recession in three quarters of a century.
Finally, we believe the final-quarter report and the overall 1.7% increase in GDP last year was not as dour as some might suggest. True, the overall rate of gain paled against the 2010 expansion pace of 3.0%. However, last year's numbers were deflated by downturns in inventory investment and federal government spending--not any diminution in core categories representing underlying strength. We continue to believe the nation will bypass another recession at this time, unless the euro zone falters more severely than we now expect.
At the time of this article's posting, the author did not have positions in any of the companies mentioned.