The U.S. Commerce Department issued data earlier this morning showing that the nation's business upturn stayed on course during the fourth quarter of 2011, as GDP rose by an unrevised 3.0% during the period. While that was a stable metric and one that was still supportive of the thesis that this country is on the right near-term business track, the estimated rate of improvement was still modestly below the 3.2% level widely forecast for the three months.
Nevertheless, the somewhat more restrained final revision of 3.0% than was expected was still materially better than the 1.8% pace of growth estimated for the third quarter, and was easily the best quarterly performance of the latest year. Our expectation is that growth will be in the range of 2.5% in the opening period of this year.
Overall, the gross domestic product, the broadest measure of all the goods and services produced in an economy, grew at an unprepossessing 1.7% last year. That said, the latest quarterly gain was still the strongest individual-period uptick since the second quarter of 2008. Meantime, that growth was largely achieved on the strength of some material inventory building in the period. There is some concern that a portion of that inventory buildup was worked down in the fast-concluding three months. On the other hand, consumer spending, a more sustainable avenue for aggregate growth, improved toward the end of the year and we see this trend continuing in the first half of 2012, at least.
Meanwhile, in addition to greater consumer spending and increased inventory investment, the pickup in GDP late last year was furthered by positive contributions from residential fixed investment and nonresidential fixed investment. Holding GDP back were declines in federal, state, and local government spending. We think this latter trend will continue as governments across the nation seek to rein in excess spending in order to better balance their budgets.
Finally, our sense is if we back out both the recent surge in inventories in the fourth quarter and the prospective easing in such investment in the now-ending period, that GDP growth, rather than backtracking modestly in the current quarter, would actually be accelerating somewhat, which would be consistent with the bulk of the business reports being released in recent months. In any event, the maturing expansion seems to be in reasonably good shape, but is still modest enough to have Federal Reserve Chairman Ben S. Bernanke recently muse that further monetary accommodation is not off of the table.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.