By Chris Cermak
WASHINGTON (MNI) – Economists expect U.S. fourth-quarter output
came in well above its otherwise weak trend for 2011, but a private
inventory build may mask some underlying weakness in demand, while few
are predicting that the strong output level will hold in 2012.
The Commerce Department’s first estimate of Q4 GDP Friday is
expected to record a 3.1% annual pace, according to a survey of
economists by Market News International. That would mark the highest
quarterly growth rate since the second quarter of 2010, up from a Q3
2011 rate of 1.8% and first-half output below 1%.
Economists expect the change in private inventories to be a major
contributor, or at least not a drag on GDP after a heavy draw in
inventories pulled down Q3 output. Credit Suisse in a research note
warned the strong inventory build could mask an otherwise sluggish GDP
report, predicting final sales — GDP minus the change in inventories —
at 1.5% for the quarter.
“It’s moderate. It’s nowhere near recession territory, but it’s
certainly not vigorous growth in the economy,” Michael Moran, chief
economist of Daiwa Capital Markets America, told Market News
International.
Moran said private domestic investment could also prove a
“low-light” in the report, offering only a minor positive contribution
well below the high clip seen in the previous two quarters. Residential
housing construction could be a brighter spot after recent improvements
in single-family and especially multi-family construction.
Manufacturing is also set to see some improvement. Manufacturing
output rose at a 3.9% annual rate over Q4, according to Federal Reserve
data. Industrial production as a whole grew at a 3.1% annual pace in Q4
as business equipment output surged 10%.
A mixed bag of consumer indicators suggests household spending did
rise above its 1.7% Q3 rate, but not by as much as might have been
expected during the holiday season. A steady drop in fuel prices,
coupled with unexpected private payrolls gains towards the end of the
year (212,000 in December, 120,000 in November) likely helped boost
household consumption.
Retail spending came in below expectations at 0.1% in December, but
climbed 0.4% the previous month and 0.7% in October. Personal spending
disappointed in October and November, rising 0.1% each month, but auto
sales in the quarter were at their highest level since 2008.
Consumer confidence, which dipped during the summer debt ceiling
battle in Washington, has also recovered towards the end of the year.
The Conference Board’s December confidence index reached its highest
level since April.
“The confidence numbers are consistent with what we’re seeing in
job market,” said Moran. “I would point more to the jobs situation than
the confidence number” as the force behind improved household spending,
he said.
While much of 2011 growth was below trend, this year’s growth is
unlikely to come in at the kind of above-trend pace seen in the final
three months of last year. Federal Reserve Chairman Ben Bernanke
Wednesday suggested a ongoing weak growth rate could be of enough
concern for the Fed to consider more monetary stimulus down the line.
“If the recovery continues to be modest and progress on
unemployment very slow, and if inflation appears likely to be below
target … there would be a very strong case for finding additional
tools for expansionary policies,” Bernanke said at his press conference
following the Fed’s latest rate-setting meeting.
The Federal Reserve on Wednesday lowered its GDP forecast for 2012
to a central tendency of 2.2% to 2.5%. The International Monetary Fund
on Tuesday left its own U.S. forecast for 2012 growth unchanged at 1.8%
and revised down its 2013 growth rate by 0.3 percentage points to 2.2%.
The IMF warned the U.S. could still face spillovers from the
Eurozone’s ongoing debt crisis and suggested the Fed and other central
banks stand ready with additional monetary easing to boost growth.
The first estimate of fourth quarter Gross Domestic Product will be
released Friday at 8:30 a.m. ET by the Commerce Department.
— Chris Cermak is a Washington reporter for Need to Know News
** Market News International Washington Bureau: 202-371-2121 **
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