In its second read on the fourth quarter of 2011, the commerce department reported that the U.S. economy expanded at a better than expected 3% pace in the last quarter of 2011, up from the 2.8% in the first read a month ago. This compares to the third quarter’s 1.8% growth rate.
The positive revision primarily reflected increased consumer spending, though contribution from non-residential fixed investment and net exports also improved. Personal consumption expenditures (PCE), or consumer spending, which accounts for close to 70% of the economy, increased by 2.1%, up from the first read’s 2% estimate. This was an increase from the 1.7% increase in the third quarter and the 0.7% growth in the second quarter.
The consumer spending increase is particularly welcome given the relatively weak internals of the original fourth quarter GDP report that had substantial contribution from the less desirable inventory component. Given the recent improvement in the labor market, one could reasonably expect favorable momentum on the household spending front. Also helpful to the spending picture should be the growing evidence of increased bank lending. While we don’t want another debt driven consumption binge in the economy, it is nevertheless an improving trend.
Will the GDP report by itself be enough to help the market build on its elevated position? Unless the other reports on today’s busy docket – Bernanke testimony, Chicago PMI, and Fed Beige Book – spoil the party, I would expect the Dow to hold on its gains. But may be the February 29 effect, which folks say has not been a particularly happy day for stocks in the past, will offset the otherwise favorable news flow.
What do youu think?
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