When GDP numbers are released this week, they are expected to be supported by the largest increase in consumer spending in four years. Economists surveyed by Bloomberg expect fourth quarter GDP to show an annual increase of 3.5%, a significant improvement over the 2.6% increase posted in the second quarter of 2010. These numbers do not lend much credibility to the calls for a double-dip over the summer. As we stated numerous times, including on July 7, 2010, the data never supported an imminent double-dip. While all forecasting is difficult, economic forecasting based on facts, rather than opinions, is what should be used when making important investment decisions.
Consumer data released this week is expected to show gains in spending which occurred at a 4% annual clip. U.S. consumers, who account for roughly 70% of economic activity, still carry significant debt burdens, but the situation in U.S. households has improved somewhat.
This week also brings a two-day Fed meeting beginning on Tuesday. It is highly unlikely, with still-elevated unemployment levels, the Fed will make any changes to its $600 billion dollar asset purchase program announced in late 2010.
An interesting Bloomberg article, Super-Cycle Leaves No Economy Behind, examines the positive slant on long-term economic growth projections stating:
For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher. With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.
Numerous problems remain, including increasing costs for food, heavy debt burdens in developed nations, and high unemployment in the United States. With the Fed and other central bankers providing more than ample liquidity, the stock and commodity markets continue to side with the optimistic, rather than pessimistic, outlook for sustainable economic growth.