The Federal Reserve downplayed recently better U.S. data and extended the extended period for a near-zero fed funds rate to late 2014. They also committed to a specific inflation target. The advance estimate of 2011Q4 real GDP growth came in weaker than expected at a 2.8 percent annualized rate; not terrible, but disappointing nonetheless. Coming on the heels of the somewhat dour FOMC policy announcement, the GDP report dials down some of the recent optimism over the run of better-than-expected Q4 data. Consumers again could not push the economy forward, increasing their spending by 2.0 percent for the fourth quarter. Relatively warm weather over the quarter is being blamed for holding down spending on consumer services, which barely increased at a 0.2 percent annual rate. Total fixed investment was soft, increasing at a 3.3 percent annual rate, however, residential investment showed its third consecutive quarterly gain, up at a 10.9 percent annualized rate in the fourth quarter. Inventory accumulation was strong, adding 1.9 percentage points to real GDP growth. Trade was a slight drag as expected. The big drag to 2011Q4 GDP came from government spending which declined at a 4.6 percent annual rate, weighed down by a large 12.5 percent decline in federal defense spending. The GDP price index increased at just a 0.4 percent annual rate. Energy price gains in January combined with increasing rents for housing will keep upward pressure on consumer inflation in early 2012. However, a cooler global macroeconomic environment does, at the least, raise the possibility of weak pricing power later this year. December sales of new homes dipped by 2.2 percent to a 307,000 unit annual rate. New orders for durable goods increased by 3.0 percent in December on the heels of a strong 4.3 percent gain in November. Initial claims for unemployment insurance have been erratic lately, increasing by 21,000 for the week ending January 21, to hit 377,000. The Conference Board released a revamped Leading Economic Index for December. The tweaks to index components show a top line increase of 0.4 percent in the LEI in December, its third consecutive monthly gain.
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