Growth Probably Picked Up at End of 2011: U.S. Economy Preview

Family Dollar Stores Inc.
Family Dollar Stores Inc. signage is displayed on the door of a location in Glendale Heights, Illinois, on Jan. 6, 2012. Photographer: Tim Boyle/Bloomberg

The U.S. economy probably accelerated in the final three months of 2011 as Americans boosted spending and companies rebuilt inventories, economists said before a report this week.

Gross domestic product, the value of all goods and services produced, rose at a 3 percent annual rate after advancing 1.8 percent in the previous quarter, according to the median forecast of 64 economists surveyed by Bloomberg News before the Commerce Department’s Jan. 27 release. Other reports may show gains in orders for durable goods and new-home sales in December.

Improved employment prospects helped make it easier for consumers, whose spending accounts for about 70 percent of the economy, to purchase new cars and buy more holiday gifts. While a slowdown in Europe is a risk to U.S. producers, a faster expansion may persuade Federal Reserve officials meeting this week to stay the course on monetary policy.

“The consumer has picked up,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “We’re still in recovery mode, and the U.S. economy still faces some headwinds, particularly from Europe, but the outlook is a bit more promising than it was a year ago.”

Household purchases increased at a 2.4 percent annual pace from October through December after rising 1.7 percent in the prior period, according to the Bloomberg survey median. The projected gain in spending would be the strongest in a year.

“The holiday season started off well,” Howard Levine, chairman and chief executive officer at Family Dollar Stores Inc., said during a Jan. 6 conference call. Sales were also strong after Christmas, and the Matthews, North Carolina-based discount retailer expected “this momentum would continue through January and February,” he said.

Auto Sales

Sales at auto dealers picked up at the close of last year. Cars and light trucks sold at an average 13.4 million seasonally adjusted annualized rate in the final three months of 2011, up from a 12.4 million pace in the prior quarter and the strongest since April-June 2008, according to figures from researcher Autodata Corp.

To meet demand last quarter, businesses placed more orders with manufacturers, who boosted production in December by the most in a year, recent Fed data showed. The increased output signals companies were probably re-building stockpiles at the end of the year, which will contribute to economic growth after subtracting more than a percentage point from GDP in the third quarter.

Demand for durable goods climbed 2.2 percent in December after a 3.7 percent surge the prior month, according to the median forecast in the Bloomberg survey before Commerce Department figures on Jan. 26. Orders for durable items excluding transportation may have accelerated last month as companies stepped up demand for business equipment.

Job Growth

Job creation has supported consumer spending. Employers added 853,000 jobs in the second half of 2011, compared with 782,000 in the first six months. The jobless rate dropped to an almost-three-year-low 8.5 percent in December.

While consumer purchases boosted growth in the fourth quarter, spending lost momentum as 2011 drew to a close, prompting merchants like Williams-Sonoma Inc. to cut prices to attract shoppers during the holidays. Sustained gains in spending depend on more progress creating jobs and faster wage growth.

Federal Reserve Bank of Richmond President Jeffrey Lacker said the economy will expand at a “modest” rate this year as it works through “persistent impediments” in housing and labor markets. The Fed begins a two-day policy meeting on Jan. 24.

Lacker on Economy

“My takeaway from 2011 is the lesson that the impediments to more rapid U.S. growth are likely to be deeper and more persistent than we thought a year ago,” he said on Jan. 13 “I am expecting only a modest improvement for 2012.”

Also on Jan. 24, President Barack Obama will also present his 2012 State of the Union address. With this year’s presidential elections approaching, Obama has proposed new ways to boost employment. The measures include issuing more non-immigrant visas to bolster the tourism industry and offering tax incentives for businesses that bring jobs back to the U.S. from overseas.

Meantime, the housing market is showing signs of stabilizing. A Jan. 26 report from the Commerce Department may show purchases of new homes climbed to a one-year high of 320,000.

Builder shares have improved. The Standard & Poor’s Supercomposite Homebuilder Index of 12 builders has climbed 14 percent since the end of the 2011, compared with a 4.6 percent increase for the broader S&P 500 Index.

                      Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Pending Homes MOM%        1/25      Dec.      7.3%     -1.0%
Durables Orders MOM%      1/26      Dec.      3.7%      2.2%
Durables Ex-Trans MOM%    1/26      Dec.      0.3%      0.9%
Cap Goods Core MOM%       1/26      Dec.     -1.2%      0.9%
Cap Goods Core Ship MOM   1/26      Dec.     -0.8%      0.6%
Initial Claims ,000’s     1/26     21-Jan     352       370
Cont. Claims ,000’s       1/26     14-Jan     3432      3500
LEI  MOM%                 1/26      Dec.      0.5%      0.7%
New Home Sales ,000’s     1/26      Dec.      315       320
New Home Sales MOM%       1/26      Dec.      1.6%      1.6%
GDP Annual QOQ%           1/27      4Q A      1.8%      3.0%
Personal Consump. QOQ%    1/27      4Q A      1.7%      2.4%
GDP Prices QOQ%           1/27      4Q A      2.6%      1.9%
Core PCE Prices QOQ%      1/27      4Q A      2.1%      0.9%
U of Mich Conf. Index     1/27     Jan. F     74.0      74.0

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