(Guarded) optimism reigns this morning after initial claims for unemployment came in below forecast and consumer confidence climbed.
The “guarded” nature of today’s optimism, however, results from yet another cut to U.S. third quarter GDP growth on the third revision to the statistics and a sneaking suspicion among economists that the good news on the economy is only temporary.
As of 1:30 New York time the Dow Industrial Average was up 0.6% and the Standard & Poor’s 500 Stock Index was up 0.8%. In Europe the German DAX Index closed up 1.1%, the French CAC 40 was up 1.4%, and the Spanish IBEX 35 was up 1%.
New claims for unemployment in the United States fell by 4,000 to 364,000 for the week ended on December 17, the Department of Labor announced. That’s the lowest level for initial claims since April 2008. Economists surveyed by Bloomberg had projected an increase in initial claims to 380,000 for the week.
The revised Michigan Consumer Sentiment Index climbed to 69.9 in December from an initial reading of 67.7. Economists had expected a revision to 68.0.
It’s only logical that a drop in new claims for unemployment would go together with improved consumer confidence—if fewer people are losing their jobs, consumers feel better about spending. Lending a helping hand are the cheapest gasoline prices since February. That puts more money in consumers’ wallets and takes some strain off of family budgets.
But we very seldom get good news these days without a caveat—and today is no exception. The third estimate of third quarter GDP growth took the economy’s growth rate down to 1.8% for the quarter from the previous estimate of 2%, which was itself down from the initial estimate.
That’s worrying to economists since the bulk of the downward revision seems to have come from consumer spending. Consumption growth fell on revision to 1.7% from 2.3% in the earlier GDP estimate. Retail final sales growth, which excludes inventory changes, took a big drop to 3.2% from 3.6%.
This has just increased uncertainty about the sustainability of U.S. economic growth at anything above 2%. How much consumer spending in the fourth quarter is borrowed from either the third quarter or the first quarter of 2012? How much growth comes from actual sales as opposed to inventory restocking?
No one knows. And that’s why today’s market isn’t up more on the good news. Financial markets are reluctant to price in growth if it won’t continue into 2012.
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