INDICATOR: Fourth Quarter GDP Revised/Weekly Jobless Claims
IN A NUTSHELL: "Small decline, small increase, it really doesn't matter as the government and inventory cut backs were the only problems with the economy at the end of last year.
WHAT IT MEANS: Well, the politicians will have to change their tune. Instead of pontificating on or worrying about a minimal decline in the economy, they will have to rail about or talk about a minimal increase in economic activity. And that shows how ridiculous is the debate in Washington. The revised fourth quarter GDP number now shows the same minimal 0.1% positive growth rate that the previous estimate showed, except then it was down 0.1%. Big deal. And the details didn't change a whole lot. Inventories took a little more out of growth, investment was a bit stronger and consumption was an itsy bit slower. In other words, the data paint the same picture except one side can say we grew and the other side cannot complain about a shrinking economy. Basically, households spent money, businesses invested and the housing market surged. That is all we really need to know and that indicates the core of the economy was in good shape. As long as businesses start to rebuild their stocks and we don't get another huge drop in defense spending (a possibility given the sequestration), more moderate gains should resume.
I continue to have some optimism about the economy despite the efforts of Washington to kill it because the labor market continues to improve. The large decline in jobless claims followed a large increase but when you consider the longer-term pattern, the trend is still slightly down. In addition, the level is consistent with job gains in the 175,000 range. Whether we get that next week may be more a function of sequestration frustration (my phrase, I claim it!) than fundamentals.
MARKETS AND FED POLICY IMPLICATIONS: Yeah, we have growth not decline. That, of course, is silly but the revision to the fourth quarter GDP numbers do reinforce the belief that the business and household sectors are moving forward. With sequestration coming tomorrow, that could change. Here is a short story to show that sequestration is already having an impact. I was at the Army War College's Heritage Museum and was told that a conference that was scheduled for the spring had to be cancelled because of uncertainty over funding. It could not be rescheduled even if an agreement was reached as there was not enough time to redo contracts. In the Carlisle area, caterers, wait people, printers and anyone supplying the function has already lost business they will never get back. This is happening all over the country and the impact will only grow the longer the sequestration continues. Let me repeat my favorite saying: "The only thing we have to fear is Washington itself" and it looks like those fears may be coming true.