February 28, 2006
News That Seems A Lot Less Bad This Time Around
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.6 percent in the fourth quarter of 2005,according to preliminary estimates...
That, of course, is some improvement over the 1.1 percent advance estimate, but it's still pretty measly. Nonetheless, much of the sting had already been taken away by the influx of positive news thus far this year and the growing sentiment that the end of last year really was just one of those things. From Reuters:
Forecasters, however, expect the economy to bounce back in the first quarter with a growth rate north of 4 percent, helped by warmer-than-usual weather at the start of the year, and financial markets largely ignored the data.
"We did have a stumble. It was related a lot to the hurricanes, and it's very clear that the economy is bouncing back nicely in the first quarter," said Dana Johnson, chief economist at Comerica Bank in Detroit.
OK -- not everyone, or everything, is so bullish. From Forbes:
Analysts said below consensus outcomes in existing home sales, consumer confidence and the Chicago manufacturing PMI data more than offset an upward revision to fourth quarter US GDP to an annual rate of 1.6 pct.
'Even allowing for the GDP upward revision, the data today has generally been regarded as disappointing and take the steam out of the dollar,' said Neil Mackinnon, chief economist at ECU Group.
And if you are looking for it, you can certainly find more to frown about. Again from the BEA report:
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.6 in the fourth quarter, 0.3 percentage point more than the advance estimate; this index increased 4.2 percent in the third quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 3.0 percent in the fourth quarter, compared with an increase of 2.5 percent in the third.
But that news is more than balanced, I think, by this, from Reuters:
Within the GDP data, the core PCE price index, the Fed's favorite measure of inflation that strips out food and energy costs, increased at a 2.1 percent rate in the fourth quarter of 2005, from the previously reported 2.2 percent pace...
"The fourth quarter core PCE deflator was revised to be a little lower than it was before," said Pierre Ellis, senior economist at Decision Economics in New York, adding "even though that revision is small, it's still a critical number and a downward revision is better than an upward revision."
So, as is often the case, there is a little something for the optimists and pessimists alike. Feel free to stick with your priors.
UPDATE: The Skeptical Speculator joins the opinion that this week's round of economic data is weak. Kash is "skeptical that growth will be that strong this quarter." Mark Thoma agrees that the the news is part of "an emerging and somewhat confusing picture of the strength of the economy. Dave at voluntaryXchange raises the fourth quarter grade to a C.
Also at Angry Bear, Calculated Risk covers Monday's new home sales report ("slowing, but not crashing"). (It's also at CR's own blog.) On the existing home sales data, The Nattering Naybob believes the "declines reflect a weakening in consumer confidence, and a rise in mortgage interest rates which have sidelined nervous home buyers." Barry Ritholtz says 'nuff said.
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