4Q2012 GDP Report Was A Clunker, But A Powerful Engine Is Under The Hood Hot

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The economy ended 2012 in good and improving shape. Hidden under the clunker headline of a -0.1% contraction in fourth quarter real GDP (from the previous quarter at a seasonally adjusted annual rate) was some serious horsepower:

  • personal consumption expenditures – the bulk of the U.S. economy – motored ahead at a healthy +2.2% rate and the best in three quarters
  • corporate cap-ex, which was supposed to have slumped on “fiscal cliff” concerns, jumped at an +8% rate, the strongest clip in five quarters
  • residential housing expenditures positively burned rubber, up at a +15% annual rate
The offsets came from a decline in the pace of inventory-building, which actually bodes well for the current quarter as companies will be re-stocking. And, the other big negative surprise came from a decline in defense spending, which most investors—and probably most Americans—view as a positive with the winding down of Afghanistan and Iraq spending.
On top of the GDP report, December personal income and spending, January new jobs, the January ISM manufacturing purchasing managers index, last week’s weekly jobless claims, January car sales and the ECRI’s weekly leading index were all, also, positive.
More broadly, as you can see in the Conference Board’s latest Index of Leading Economic Indicators, the forward–looking data since year-end have been uniformly breaking positively, which is the obvious explanation for the S&P 500’s +5% surge.

It may be time for the market to take a rest, having already achieved half the +10% consensus return forecasted by 12 Wall Street strategists in Barron’s in December 2012. However, it’s pretty clear from the data that the U.S.’s economic momentum is improving and stocks. Iin my opinion, we have every reason to continue in the direction of the experts’ target over the remaining 11 months of this year.

For a more thorough review and analysis of the latest economic and stock market data, please tune in to my monthly A4A webinar on Tuesday, February 12, at 4:00pm EST.





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