NEW YORK (Reuters) - The U.S. economy grew at a faster-than-expected 5.7 percent pace in the fourth quarter, the quickest pace in more than six years, as businesses reduced inventories less aggressively, the Commerce Department said on Friday.
KEY POINTS: * The first estimate put fourth-quarter gross domestic product growth at its fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter. * Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 4.6 percent rate in October-December period. * Growth was boosted a sharp slowdown in the pace of inventory liquidation, a factor that could mask the strength of the economic recovery from the longest and deepest downturn since the Great Depression.
MICHAEL TORPOREK, CHIEF INVESTMENT OFFICER, BROOKSTONE PARTNERS
“It’s improving, but I’m not sure it’s improving at a stable rate.
“I view the fourth-quarter (GDP number) as make-up for the third-quarter, and not so much a harbinger for sustained 5 percent growth.
“We are stabilizing, working toward a more sustainable recovery, but we’re not there yet.”
“We got to be very cautious about what it implies for the future because it (came) from the inventory cycle... if you take out net exports as well, the actual final spending by U.S. consumers, businesses and government actually grew more slowing in the fourth quarter than the third quarter.
“I’m a bit doubtful that net exports can continue to be a plus because I think we’re going to see a rebound in imports. Also, there’s not a lot more, in terms of the growth effect, to come from inventories.
“I don’t think it changes the story that it will still likely to be a relatively subdued recovery by historical standards.”
CARL LANTZ, U.S. INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW
“A big inventory build added about 3.4 percent and then a swing in net exports added another half of a percent. When you look at domestic demand, final sales to domestic purchasers, it was only 1.7.
“It’s ok. I think the underlying demand picture is kind of stabilizing but it’s certainly not ramping up aggressively.
“The question is how much more inventory build is left to go and what’s GDP going to look like once that inventory adjustment takes place? It still looks like the underlying growth rate of the economy is still pretty soft. That’s kind of consistent with a sub-par recovery compared to what you normally would get coming out of a deep recession.”
TOM PORCELLI, SENIOR ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
“When you strip out inventories, you see real final sales were 2.2 percent. This is not a fantastic number. If you compare this to the ‘75 and ‘82 recessions, real final sales in the first two quarters after, we averaged 5 percent after ‘82 recession, and about 4 percent after the ‘75. By comparison, we obviously are looking pretty weak.
“This is rear view mirror number and here were are in the first quarter, so from the macro perspective, there is not much that has changed to get all bulled up about.”
“The overall number came in as we had expected and the real story is final sales, which continue to be positive. The final sales is a reflection on consumer spending, which is good to see, and business investment and software equipment and the federal government. We do have sustained economic growth and it is not a “V” recovery. The economy continues to improve, but we do not have an economic boom here. This implies the Fed will be on hold and is consistent with the Fed’s minutes. The Fed must be pleased with the economic growth and the inflation number remains pretty low, which is important. For an economist, this is a good report... This shows the economy is healing and doing okay.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, AVALON PARTNERS, NEW
“It’s good news, although you can make a case that it was driven mostly by a slowdown in inventory liquidation. Nevertheless, it is a good number, and it is two consecutive quarters of GDP growth which technically takes us out of the recession, pointing to continued growth in the economy.
ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP, BOSTON:
“It is surprisingly strong. It seemed like people were downgrading what they thought it was going to be as the week went on, and then all of a sudden this is way on the outside edge of any kind of range of consensus. I have to take a look at it but I suspect it has to do with less of a drawdown of some inventories and maybe some trade, but this is certainly very surprising. I’m not sure what this does for the Fed, but since this is the advanced report it is subject to some pretty significant downgrades as they get real numbers on both exports and inventories. I doubt it will stay this high once they revise it twice.”
BORIS SCHLOSSBERG, DIRECTOR FOR CURRENCY RESEARCH, GLOBAL FOREX
“Wow, it’s a big headline. Net-net it is a positive report and we are seeing a spike up in many markets. But after the initial impact, one has to rethink this number and note that some underlying drivers to growth are still underperforming. Most of the jump in the headline GDP figure came from a rebuild in inventories, which is to be expected.”
“Inventory accumulation was the key to the number. Personal consumption is more moderate when you take out the inventory, and that throws into question the sustainability of any kind of growth, because personal consumption is the key.
“It is good for the day trade, but this was maybe all built into the pricing of the stock market already. While the polls were around 4.7 percent, the whispers were more toward 5.5 percent.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK,
“Wow, great number. It’s very solid and gives us a running start into the second half of the year when we can’t rely on government stimulus. That’s part of the plan, to get us moving as fast as possible so when life support is removed we’ll have a pulse.
“It’s possible this could lead to higher interest rates, but most investors are looking past government programs and to the second half of the year when we won’t have Fed buying and stimulus. Having a front-loaded number is all-in-all good news. Better too high than too low.
“This will be the focus for trading today. Also it seems like the EU is putting together a support plan for Greece today. I’m hoping the two will drive prices higher.”
MARKET REACTION: STOCKS: U.S. stock index futures extend gains BONDS: U.S. Treasury debt prices extend losses DOLLAR: U.S. dollar rises versus yen