Weekly Industry Crib Sheet: Consumer Confidence Rebounds to Yearly High

Plus: U.S. Economy Grows, Durable Goods Orders Plummet and Jobless Claims Fall.

U.S. Economy Grew More than Expected in Q4

The United States economy grew a bit faster in the final three months of 2011 than initially reported, expanding 3 percent in the fourth quarter rather than the 2.8 percent originally reported, according to the U.S. Department of Commerce last week. The upward revision reflected an increase in nonresidential fixed investment, lower imports and higher consumer spending, and marked the fastest pace  of growth since spring 2010.

Economists surveyed by MarketWatch had expected real gross domestic product (GDP) growth to be revised down to 2.7 percent from the initial reading.

“Most of last quarter’s growth stemmed from a jump in company restocking. That happened because businesses rebuilt inventories that had been depleted last summer. Stockpiling is expected to slow sharply this quarter. And as it slows, economic growth could, too,” the New York Times reports. “But economists stressed that the fundamental drivers of the economy — incomes, consumer spending and business investment — are rising. They will most likely sustain modest growth this year.”

The Manufacturers Alliance for Productivity and Innovation’s (MAPI) Quarterly Economic Forecast, also released last week, expects inflation-adjusted GDP to expand by 2.2 percent in 2012 and 2.4 percent in 2013, up from 1.7 percent growth in 2011.

“The forecast is a bit more optimistic and the probability of a double-dip recession has diminished,” according to MAPI Chief Economist Daniel J. Meckstroth. “There is pent-up demand for consumer durable goods, especially motor vehicles. In addition, business investment is improving, and not just for repair and replacement of equipment — there is also investment in expanding capacity.”

This upbeat assessment is shared by business economists at the National Association for Business Economics (NABE), who estimate real GDP growth to grow 2.4 percent in 2012. The NABE Outlook Panel of 45 forecasters believes growth will be stronger in the second half of 2012 than it will be through June.

Nevertheless, some cautionary flags remain.

“The major risks will come from developments in the Eurozone and the severity of its recession, and from concerns regarding oil prices, especially with Iran,” Meckstroth says.

Consumer Confidence Rebounds to Yearly High

The Conference Board’s Consumer Confidence Index increased 9.3 points to 70.8 in February, following a 3.3-point decline in January. The latest monthly reading marks the highest level of consumer confidence since February 2011 and represents an improving outlook for economic conditions across a range of indicators.

The percentage of U.S. consumers who consider business conditions to be “good” inched up to 13.3 percent last month from 13.2 percent in January, while those who consider business conditions to be “bad” fell to 31.2 percent from 38.3 percent. Labor market conditions are also on an upswing, with 6.6 percent of respondents stating jobs are “plentiful,” up from 6.2 percent in January, while those saying jobs are “hard to get” decreased to 38.7 percent from 43.3 percent.

“Consumer confidence, which had declined last month, posted a sizeable improvement in February. The index is now close to levels last seen a year ago,” Lynn Franco, director of the Conference Board Consumer Research Center, said. “Consumers are considerably less pessimistic about current business and labor market conditions than they were in January. And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects and their financial situation.”

Meanwhile, the Present Situation Index also rose to 45 in February from 38.8 the prior month, and the Expectations Index climbed to 88 from 76.7. Although concerns remain about rising gas prices, which stifled economic growth early last year, the impact is likely to be less significant in 2012 due to lower costs for natural gas and stronger prospects for household earnings.

“The confidence index is still far below the 90 that indicates a healthy economy. But it’s closer to levels that indicate a steady economy,” the Associated Press reports. “The index has risen slowly since hitting an all-time low of 25.3 in February of 2009. And in the past 12 months, it’s jumped from the high 60s to the low 40s amid continued worries about the health of the U.S. economy.”

Durable Goods Orders Decline in January

New orders for U.S. durable goods fell sharply in January after three consecutive months of gains, led by a slump in commercial aircraft orders, according to the U.S. Department of Commerce last week. Manufacturers’ orders for long-lasting goods dropped 4 percent to a seasonally adjusted $206.09 billion, the steepest decline since January 2009, with demand slipping across the board — from machinery and appliances to airplanes.

The 4 percent drop was much larger than the 1 percent decline economists surveyed by Bloomberg News had expected.

“Data on durable goods can be volatile, and January’s weakness followed strong gains in December and November,” Reuters notes. “Some analysts said the weakness last month was likely due to one-time factors like the expiration of some tax breaks.”

Orders in the transportation sector slipped 6.1 percent in January after a 6.4 percent gain in December. Excluding transportation, orders for durable goods decreased 3.2 percent in January following a 2.1 percent increase the previous month.

The Commerce Department data also point to a potential scaling back of business investment, which would undermine a pillar of the country’s recovery from the 2007-2009 recession.

“In a troubling sign for the economy, a key barometer of capital spending by businesses fell in January,” the Wall Street Journal reports. “Orders for non-defense capital goods excluding aircraft declined by 4.5 percent [in January] — the biggest drop in a year — suggesting concern among businesses about the uneven economic recovery.”

Meanwhile, shipments of manufactured durable goods in January edged up 0.4 percent, to $207.8 billion, following a 1.9 percent increase in December. Transportation equipment had the largest increase, rising 5.4 percent to $50.3 billion after a 1 percent December increase.

Jobless Claims Inch Downward

New initial jobless claims dropped in the latest week reported, signaling continued improvement in the labor market. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending February 25 fell by 2,000 to a total of 351,000, down from the previous week’s revised figure of 353,000. The four-week moving average, which provides a broader measure of employment trends, fell by 5,500 to 359,500.

“Hiring usually picks up when applications for jobless benefits drop below 400,000, based on historical patterns. New applications for jobless benefits have fallen under that mark in 15 of the past 17 weeks,” MarketWatch notes. “Yet the relationship between hiring and weekly claims, which seldom drop below 300,000 even in the best of times, is far from exact. Other data such as the monthly employment report provide a much clearer picture of hiring trends.”

Although the economy continues to add jobs, there is still a long way to go before fully recovering from the losses incurred during the recession. Almost 6 million of the jobs lost during the downturn have not been replaced, and the national unemployment rate remains elevated at 8.3 percent. At current hiring rates, employment would not return to pre-recessionary levels for several more years.

“The government will release February’s employment report on March 9. While the labor market is gaining momentum, the level of employment is still 5.82 million from its pre-recession level,” Reuters explains. “On Wednesday, Federal Reserve Chairman Ben Bernanke described the labor market as ‘far from normal’ and that further improvement would require stronger growth in final demand and production.”



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