Q4 GDP Revision and House Prices, Jan. Durable Goods, Feb. Confidence

Upward Revision for 2011Q4 GDP to 3.0 Percent

  • Real Gross Domestic Product for 2011Q4 was revised up to a 3.0 percent annual rate.
  • New Orders for Durable Goods in January fell by 4.0 percent; losses were broad-based.
  • The Conference Board’s Consumer Confidence Index surged in February to 70.8.
  • The Case-Shiller U.S. House Price Index fell by 1.7 percent from 2011Q3 to Q4.

The second estimate of 2011Q4 real GDP growth was revised slightly to 3.0 percent, up from the first estimate of 2.8 percent. Nothing earth shattering here, but confirmation of a broadening economic expansion through the second half of last year.  Growth in real consumer spending was revised up slightly to 2.1 percent. Solid U.S. data through February indicate some upside risk to our February forecast for real GDP growth of 1.8 percent for 2012Q1. If we get another month of about 200,000 jobs in February that would be consistent with real GDP in the range of 2.0 to 2.5 percent. The February employment data will be released on March 9. Most indicators of manufacturing conditions remain very healthy. The Texas Manufacturing Outlook Survey showed a nice increase for February, up to 11.2, according to the Dallas Fed. Also, the Fifth District Survey of Manufacturing Activity, published by the Richmond Fed, showed an uptick in manufacturing conditions for the central Atlantic region in February. A sour note was struck by the durable goods report for January, which showed a sizeable 4.0 percent decline in new orders for durable goods. This is a very volatile series that has recently been juiced up by lumpy commercial aircraft orders.  A one-month correction does not make a trend. However, declines were broad based across industries, and also coincident with the expiration of the accelerated business depreciation that came with the Obama administration’s 2011 tax package. Strong regional manufacturing reports suggest that the weak orders in January will not persist…stay tuned.

Consumer confidence strengthened in February according to the Conference Board as their consumer confidence index ticked up sharply from 61.6 to 70.8. Consumer confidence tends to track equity markets closely and so the February gains should come as no surprise given the strong rally in stock prices. Higher gasoline prices may be a drag on consumer confidence in February but consumers may not be as concerned about gasoline prices as some media outlets have portrayed. Mild weather and lower natural gas prices are keeping utility bills in check this winter. Also, deleveraging has left many households with a little more walking around money, allowing them to absorb a little pain at the pump on the way to the mall. House prices remain soft. The Case-Shiller U.S. House Price Index for 2011Q4 fell another 1.7 percent. The backlog of foreclosures implies weak prices through the remainder of this year. However, home sales are starting to lift off the post-recession bottom and that is good news.

Market Reaction: Equity markets are up. Treasury yields are down at the long end of the yield curve. Oil is up to $107.16/barrel. The dollar is down against the yen and the euro.

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