Deller's two cents: recession, what recession? Slow and steady.....
Economic Week in Review: The recovery picks up speed
January 28, 2011
As the first month of 2011 draws to a close, signs indicate that the economic recovery is slowly gaining momentum. It was reported this week that the nation's real GDP grew more than 3% last quarter, thanks in part to an increase in consumer spending. Consumer confidence improved notably in January, and new-home sales picked up during the month of December. For the week ended January 28, the S&P 500 Index dropped 0.5% to 1276 (for a year-to-date total return of about 1.6%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 3.36% (for a year-to-date increase of 6 basis points).
Consumer spending and trade boost GDP
The country's real gross domestic product (GDP), which is a broad measure of the goods and services produced in the United States, increased by 3.2% (annualized) in the fourth quarter of 2010. Consumer and business spending played an important role in this economic growth.
"The GDP headline number came a bit below consensus expectations of 3.6%, in part because of the unexpectedly large inventory drawdown," said Vanguard economist Roger Aliaga-Díaz. "However, this drop in inventories is at the same time a very encouraging sign for the strength of final demand during 2011. Overall, the report is yet another indication that the balance of risks to the recovery outlook is becoming more favorable."
Personal consumption expenditures rose 4.4% (annualized) last quarter, partly because of holiday sales. Sales of durable goods, including cars and furniture, increased 21.6% for the quarter, while sales of nondurable goods rose 5.0%. Final sales of domestic products jumped an impressive 7.1%-the largest quarterly gain since 1984.
The U.S. economy also benefited from growth in exports, which increase GDP, and shrinkage in imports, which reduce it.
Consumers grow more confident
The Conference Board's index of consumer confidence spiked to 60.6 for the month of January-a sizeable jump from its 53.3 reading in December. Consumer sentiments regarding the current and future job market, business conditions, and income expectations were all improved for the month. While consumer confidence has been on the rise over the past several months, overall confidence remains relatively weak. The Conference Board typically considers a score of 90 or more a good indicator of a solid economy.
Fed holds steady
After meeting for the first time in 2011, the Federal Open Market Committee (FOMC) announced that it will make no changes to its monetary policy. As it has since December 2008, the central bank voted to keep the target federal funds rate in the 0% to 0.25% range "for an extended period." The FOMC will also continue with its plan to purchase $600 billion in Treasuries by the middle of this year. The program is designed to prevent deflation and support economic recovery.
New-home sales spike
New-home sales were stronger than expected in December, jumping 17.5% for the month and reaching an annualized rate of 329,000 units. The boost in sales may have been helped by homebuilders who attempted to clear out houses at a discounted rate before year-end. Compared to 2009, new-home sales are still down 7.6%, suggesting that it's going to take awhile before the housing market recovers. (A separate measure released this week, the S&P/Case-Shiller Home Price Indices, showed that U.S. home prices declined in November 2010.)
A dip in durable-goods orders
The nation's factories experienced a 2.5% drop in durable goods orders for the month of December. A decrease in the demand for military and commercial aircraft accounted for much of the decline. Excluding the transportation sector, demand for durables rose 0.5% for the month.
Employer costs are on the rise
Employer costs increased 0.4% during the fourth quarter of 2010. Growth was equal in all three of the measured categories-wages, salaries, and benefits. Costs rose between 1.6% and 2.9% in all three categories compared with those of one year ago. This growth indicates that the labor market is steadily but slowly growing stronger.
The economic week ahead
Friday's release of the Labor Department's monthly assessment of the employment situation will be next week's big news. Other reports will include the latest on personal income (Monday), auto sales, construction spending, the ISM manufacturing index (Tuesday), factory orders, the ISM nonmanufacturing index, and productivity and costs (Thursday).
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
