In a week where Wall Street appears to be clamoring for some positive news to offset recent negative headlines, including a moderation in China’s manufacturing activity, lackluster earnings figures stateside, emerging market concerns, and a continuation in the Federal Reserve’s bond-buying tapering, it may have received such upbeat tidings from the U.S. Government, which issued its first estimate of fourth-quarter 2013 GDP (gross domestic product) growth at 8:30 A.M. (EST).
Specifically, the U.S. Bureau of Economic Analysis, reported that the nation’s economy expanded by an annualized rate of 3.2% in the final quarter of 2013. When combined with the 4.1% advance in the third quarter, it clearly shows that the U.S. economy is strengthening. More important, the report indicated that personal consumption accelerated at an annualized rate of 3.3% in the fourth quarter, up from the 2.0% pace seen in the July-to-September period. This is rather noteworthy, as the consumer accounts for about two-thirds of the nation’s economic output. With this in mind, it stands to reason that if the consumer is feeling better, the economy should continue to show improvement.
Taking a closer look at the component parts, the data revealed that many sectors of the economy contributed in a positive way to the fourth-quarter GDP growth. (Note: The next revision to the fourth-quarter GDP estimate is scheduled to be released on February 28, 2014.) The increase in real gross domestic product reflected positive contributions from personal consumption expenditures, exports, nonresidential fixed investment, private inventory investment, and state and local government spending. This more than offset negative contributions from federal government spending and residential fixed investment, as well as an increase in imports, which subtracts from the GDP calculation. Furthermore, when factoring in that the partial government shutdown in October was a 0.3% point drag on the fourth-quarter performance, the advance is even more impressive.
All in all, the latest GDP data are another sign that the U.S. economy is clearly on the upswing. The sturdy increase in final demand should put the economy on a nice growth path in 2014. However, we do warn that an inventory correction, which was expected in the fourth quarter, but did not materialize, will likely be a notable drag on growth in the first few months of this year. Nevertheless, we still expect solid growth in 2014, especially if the consumer is feeling better, which looked to be the case during the final six months of 2013. In fact, the noted jump in consumer spending in the final period of 2013 was the strongest since the fourth quarter of 2010.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.