The economy expanded at a 3.0% annualized pace in the fourth quarter, according to the unchanged final estimate from the Commerce Department. Modest improvement in the pace of personal spending growth and a buildup in business inventories were the predominant contributors to solid quarterly growth.
The data paints a clear picture of an economy that built momentum throughout the course of the year, closing on a high note. The fourth quarter was the strongest quarter of growth in 2011, despite the seeming slowdown late in the holiday retail sales season. Attention will now turn fully to first quarter results, which are also anticipated to extend the positive momentum, largely driven by continued improvement in consumer sentiment extending to a willingness to spend.
The moderate weather of the past few months may have mitigated the typical seasonal slowdown in spending, propping up first quarter gains but potentially leading to a more muted result in the second quarter. This is difficult to measure in real time, but is certainly a valid consideration when evaluating the landscape and underlying strength of the economy.
Optimism has waned modestly of late, as economic data has been mixed. Yesterday’s report on February durable goods orders disappointed, although recent jobs market data has still been solid. Today’s report on jobless claims was modestly weaker than anticipated, but at 359,000 first time claims reported for the last week, still suggests that the labor market remains on a solid footing.
Looking abroad, conditions in Europe remain tenuous, with much of the region contracting. Concerns have also mounted of late about the degree of the slowdown occurring in China, which now appears to be sharper than previously anticipated. For the U.S. economy to continue to build from here, it will have to do so without much outside support.
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