Fourth quarter performance of the U.S. economy was revised slightly higher Wednesday, with one more revision to come in a month. Then, in coming years, the U.S. Commerce Department will revise the data anytime they want to — but I digress.
The American economy grew at a 3 percent real (after inflation) annual rate during the October-December 2011 quarter, up slightly from the 2.8 percent rate initially reported. Ironically, 3 percent was the consensus forecast when the data first came out in late January — you just can’t win
The Best of ‘11
The 3 percent growth pace during 2011’s final quarter was the best of the year, following real annual growth rates of 0.4 percent, 1.3 percent, and 1.8 percent in the three prior quarters of 2011. The 3 percent fourth quarter growth pace was also the best since 2010’s second quarter. Still, the economy’s real growth pace of 1.7 percent during 2011 badly trailed the 3 percent real growth pace of 2010.
Growth in the current quarter is likely to weaken, with most forecasts around a 1.8 to 2.4 percent real annual rate. Second quarter performance looks a bit better at this time.
In addition, the U.S. economy has averaged a 2.4 percent real annual growth pace since the current economic expansion officially began in July 2009. Such growth ranks as the weakest economic rebound from recession since the 1940s — ouch!
It seems the “headwinds” of No. 1, weak housing markets across the country, with home values down roughly 35 percent since their 2006 peak; No.2, still high unemployment (by two measures, much higher than the currently reported official 8.3 percent rate); and No. 3, enormous anxiety about the size, growth, and direction of the U.S. government (think $1.3 trillion annual budget deficits for four years now) have lessened corporate interest in expansion and new hiring, as well as pooh-poohed consumer interest in more aggressive spending.
Yes, the economy added more than 400,000 net new jobs during the past two months — only 5.5 million more net new jobs to go and we will be back to “square one” of 2007.
The What Ifs
A couple of reasons can be noted as to why the U.S. economy keeps growing, even if at a modest clip. First, two full years of never-ending discussion and media attention about sovereign (national) debt stresses in Greece, Ireland, Portugal, Spain, Italy, etc. have yet to see those nations’ slide into the Atlantic or the Mediterranean. The Europeans have simply become the world’s best participants at kicking the can down the road. Second, a lot of discussion last summer about impending U.S. recession in 2012 (never our view or the consensus view) finally fell by the wayside.
Yes, threats to U.S. economic growth remain. Iran’s nuclear ambitions and the likely Israeli or U.S. (or other) military response could upset the apple cart. Oil prices could jump much higher. European issues could become much more daunting.
At this juncture, however, the stock market is telling us that things have modestly improved. That is usually as good an indicator as we get.
A key measure of how consumers feel about the economy and their prospects within it jumped nicely in February. The Conference Board reported that its Consumer Confidence Index jumped from a revised 61.5 in January to a greater-than-forecast 70.8 in February.
Most forecasters predicted the Index would rise to around 63, again showing you what we economists know. The 70.8 February measure was the highest since it reached 72 last February.