Another backward-looking economic report dispatched a fresh round of hope Friday for thinking that a new recession isn't knocking on our collective doorstep. The U.S. economy expanded at an annual real rate of 2.8% in last year's fourth quarter, the Bureau of Economic Analysis reports. That's a respectable bit of improvement over Q3's 1.8% sluggish pace. Granted, the latest number fell short of the consensus forecast, which called for a 3.1% rise. But it's hard not to notice that the Q4 GDP still rose at the fastest rate since the second quarter of 2010. Perhaps it's fair to say we're slumping toward progress.
At any rate, between Friday morning's advance estimate of GDP and the revival in December's reading of the Chicago Fed National Activity Index, it's safe to say that 2011 was recession free. With that clean break, it's on to debating if 2012 will succumb to the darker forces of the business cycle.
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"The economy ended 2011 on a fairly positive note, but the composition of growth in the last quarter is not favorable for growth early this year," warns Ryan Sweet, a senior economist at Moody's Analytics.
Part of the concern is that Q4's rebound in business inventories will slow in early 2012. As MarketWatch advises, "Businesses may have accumulated excess stock on hand and didn’t sell as many products as expected during the holiday season, analysts say." Paul Ashworth of Capital Economics comments that "the pickup in growth doesn't look half as good when you realize that most of it was due to inventory accumulation."
January data has only started to trickle in, of course, so it's going to take some time to see if the acceleration in Q4 GDP has legs. What little data we have so far for 2012, however, offers some mild encouragement. Initial jobless claims this month are still trending lower, although the latest number popped in the wrong direction. Meanwhile, the regional business surveys for January, conducted by the Fed banks of New York, Richmond and Philadelphia, offer an "upbeat" profile, notes economist Ed Yardeni. But he also worries "about the recent weakness in petroleum usage and electricity output in the US." Yardeni explains:
The former fell during the week of January 13 to 18.98 million barrels a day (using the 52-week moving average to smooth out this volatile series). That’s down from a recent peak of 19.31mbd during the week of April 29, and the lowest usage since the week of July 11, 2010. Electricity output (also based on its 52-week average) was remarkably flat over the past year, but then dropped sharply during the first two weeks of this year. Maybe it’s just the weather.