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March 30, 2005
Fourth Quarter GDP: No New News
The U.S. economy ended 2004 with brisk momentum on the strongest surge of corporate profits in three years, the government reported Wednesday, though there were signs that price pressures might be picking up.
Gross domestic product, which measures total output within U.S. borders, expanded at a 3.8 percent annual pace in the fourth quarter, the same as estimated a month ago, the Commerce Department said in its third and final estimate of GDP performance.
This was almost certainly the most unwelcome news:
The revisions in the final estimate of fourth-quarter GDP were minor but they included a slight bump up in a key price measure, which set nerves on edge in financial markets.
There was some evidence that inflation might be perking up. A price index favored by Federal Reserve Chairman Alan Greenspan -- personal consumption expenditures excluding food and energy products -- gained at a 1.7 percent annual rate in the fourth quarter, up from a 1.6 percent estimate a month ago and nearly twice the 0.9 percent third-quarter rate of increase.
Combined with incoming price data, it's maybe understandable that we would get comments like this:
Economist Carl Tannenbaum of LaSalle Bank in Chicago said higher prices were bound to make markets sensitive to the possibility that the Federal Reserve might accelerate the interest rate-rise campaign it initiated in June, which so far has produced seven quarter-percentage point increases in the federal funds rate.
"I wouldn't expect a big reaction but as we accumulate evidence going into the next Fed deliberation, any sign of higher inflation pressures place a higher percentage on the potential remove of that word 'measured'," Tannenbaum said.
UPDATE: James at Capital Spectator has much more. Calculated Risk thinks we should be looking at mortgage debt trends. (CR: What about net worth?)
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