Good News from GDP, ECB - Analyst Blog


While we do have some favorable-looking headlines out of Europe this morning, with the European Central Bank (ECB) injecting further funds into the region's banking system, the focus today will likely be on the U.S. economy. On that count, the GDP report was a positive surprise.

We also have Bernanke's testimony to the House Financial Services committee and the Chicago PMI reading on the docket for release a little later. It will be interesting to see if the market can consolidate its elevated level or if it will give ground.

In its second read on the fourth quarter of 2011, the commerce department reported that the U.S. economy expanded at a better-than-expected 3% pace in the last quarter of 2011, up from the 2.8% in the first read a month ago. This compares to the third quarter's 1.8% growth rate. The positive revision primarily reflected increased consumer spending, though contribution from non-residential fixed investment and net exports also improved.

Personal consumption expenditures ( PCE ), or consumer spending, which accounts for close to 70% of the economy, increased by 2.1%, up from the first read's 2% estimate. This was an increase from the 1.7% increase in the third quarter and the 0.7% growth in the second quarter.

The consumer spending increase is particularly welcome given the relatively weak internals of the original fourth quarter GDP report that had substantial contributions from the less-desirable inventory component. Given the recent improvement in the labor market, one could reasonably expect favorable momentum on the household spending front.

Also helpful to the spending picture should be the growing evidence of increased bank lending. While we don't want another debt-driven consumption binge in the economy, it is nevertheless an improving trend.

The ECB injected huge amounts into the Euro-zone banking system through its second round of Long-Term Refinancing Operation (LTRO). The central bank paid out €529 billion in three-year loans to 800 banks, up from €489 billion injected through the same program in December. The program was particularly successful the first time around as it helped ease liquidity concerns about the banking system. It also had a positive impact on the government bond markets of Italy and Spain, where bond yields have been on a downtrend ever since the December LTRO.

Many in the market view the LTRO program as the ECB's backdoor quantitative program, though it's not clear the extent of actual bond purchases that the banks undertook with the extra money.

In corporate news, we have better-than-expected results from Costco ( COST ) and Staples ( SPLS ) this morning, while DreamWorks Animation ( DWA ) and First Solar ( FSLR ) came out with weak results after the close on Tuesday.

COSTCO WHOLE CP ( COST ): Free Stock Analysis Report
DREAMWORKS ANIM ( DWA ): Free Stock Analysis Report
FIRST SOLAR INC ( FSLR ): Free Stock Analysis Report
STAPLES INC ( SPLS ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: COST , DWA , FSLR , PCE , SPLS

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