Today’s revision to the fourth quarter GDP results suggested that the economy grew at a 2.8% annualized rate, a pace less rapid than previously believed and disappointing relative to the market’s expectation of a slight increase over the prior estimate. Moreover, this revision suggests that fourth quarter growth was only fractionally better than the third quarter result.
Although consumers did ramp up their spending in the final three months of 2010, it now appears that pickup was also less rosy than previously reported. Nonetheless, evidence continues to point to consumer spending moving in a positive direction.
The report also suggests that inflation – even core inflation – picked up in the final quarter and that increase in price levels weighed a bit more heavily on real growth than previously estimated. The Fed is still showing little sign of anxiety about inflation, however, and appears unlikely to move to tighten any time soon.
Even within the current easy money environment, the economy continues to face the harsh reality of a weak housing market, rising commodity costs, and lackluster job creation. These factors remain sources of anxiety for consumers and focal points for Fed policy.
Ultimately, today’s release serves as little more than a refinement in the estimated trajectory of the economy based on additional data that was gathered in the past month. Fundamentally, our core outlook remains little changed.
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