Fourth Quarter GDP Fails To Impress

The US economy rebounded smartly in the fourth quarter, with Friday’s release of fourth quarter growth as reflected by GDP coming in at a much stronger 5.7%. These figures were aided by the now expired cash for clunkers auto purchase program to a degree. However delving deeper into the details reveals non-auto spending came in at a robust 2.9%. What cannot be ignored also, since the US consumer accounts for roughly 70% of our nations growth, wages, salaries and benefit rose by .5% Most importantly we see business investment reversed the prior three month decline of 5.9% to post a positive 2.9% expansion. When we finally see evidence corporate America is no longer hoarding every dollar and is in the nascent stages of deploying capital due to increasing confidence in their respective businesses, can adding headcount be far down the road. Just in January alone we see another sign of healing in one of the most troubled areas, autos. All the domestic major automakers, Ford , GM and Chrysler are adding headcount amid stronger than anticipated demand. Another positive for the area, US Bancorp recently announced they plan on bringing 1100 new jobs to the local area. Additionally local Medical IT provider Cerner Corporation inked a deal with Wyandotte County to build a new campus beginning in 2011 which could potentially introduce 4000 new jobs by 2016 to the area. These are all positive signs, and if we can think for a moment of the US economy in terms of an oil super tanker making a turn. The US economy is the most mature and largest in the world, so we cannot make turns as quickly as a speedboat. But these clearly are early signs we are coming about!



Now the market is taking a breather in the wake of this early good news. The bulls have had a historic run, off the March 2009 lows. The current scorecard for earnings season for S&P 500 companies reflects 70% have beat estimates thus far. Even with earnings season producing outstanding numbers and guidance relatively good we seemed to have stumbled. We need look no further that Capitol Hill. Market participants have shifted their monocle’s temporarily away from earnings season as they consider the regulatory risks now being considered in Washington . The Democrats, having lost an important seat in Massachusetts , are fine tuning their message and focus. Currently a shift away from Healthcare reform and now more aggressively towards taxing large banks and (finally) job creation. These are all worthy and necessary causes, however the current debate on Wall Street and Main Street are priority and timing. At a time when credit remains elusive for many individuals and small businesses, should we be taxing banks and therefore removing even more money from the lending pool? This question along with the threat of higher capital ratios and separation of banks and risky investments may have the effect of banks hoarding cash until they receive clarity around these issues. One possible outcome, companies put expansion plans on hold, small businesses can’t execute their business plans and new hires never materialize causing a double dip recession.



These are valid concerns, however I remain very confident in the resilience of the US worker and the entrepreneurial spirit of Americans as a whole. The current market pause, may prove, as I believe to be a natural healthy bout of profit taking after having rallied 70%+ and provide opportunistic investors attractive entry points for new money.