Economic Growth Jumps to 3%; Prices Post Big Gains

The U.S. economy grew a bit faster than initially thought in the fourth quarter on slightly firmer consumer and business spending, which could help to allay fears of a sharp slowdown in growth in early 2012.
Gross Domestic Product (GDP) expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said in its second estimate. That was a step up from the 2.8 percent pace it reported in January.

Price indexes also swelled, with the core personal consumption expenditures (PCE) index jumping 1.3 percent, against an advanced reading of 1.1 percent.

Economists polled by Reuters had expected fourth-quarter GDP would be unrevised at a 2.8 percent pace. The economy grew at a 1.8 percent pace in the third quarter.

While the build-up in business inventories still accounted for much of rise in output in the last quarter, the revisions to GDP unveiled an improved tone for the first-quarter growth outlook.

Businesses were not as aggressive in their restocking efforts, which should help to allay fears of a sharper slowdown in output this quarter. 

In addition,  consumer spending— which accounts for about 70 percent of U.S. economic activity — was a touch firmer than initially thought. Consumer spending rose at a 2.1 percent rate instead of 2 percent.

Even spending on home building was firmer than previously estimated and investment on nonresidential structures was modestly weak.

So far data ranging from employment to manufacturing have shown underlying strength in the economy, reducing the need for the Federal Reserve to ease monetary policy further by launching a third round of asset purchases or quantitative easing.

US Mortgage Purchase Applications Jumped Last Week: MBA

Applications for U.S. home mortgage purchases jumped last week as interest rates dipped an industry group said on Wednesday. The MBA's seasonally adjusted index of loan requests for home purchases shot up 8.2 percent.
 "Purchase application volume increased over the week, but remains within the narrow and anemic range of activity we have seen since the expiration of the homebuyer tax credit in May 2010," Michael Fratantoni, vice president of research and economics at the MBA, said in a statement.

Major Jump in Services Sector

The pace of growth in the services sector unexpectedly accelerated in January to its highest level in nearly a year, according to an industry report released on Friday.
The Institute for Supply Management said its services index rose to 56.8 last month from a revised 53.0 in December.
It was the highest level since February 2011.

Economists had expected the index to hold steady at 53.0, according to a Reuters survey. A reading above 50 indicates expansion in the sector. 

Another report on Friday showed new orders for U.S. factory-made products posted a second straight monthly rise in December and business capital spending also picked up.

The Commerce Department said orders for manufactured goodsincreased 1.1 percent.

But November's gain was revised up to 2.2 percent from a previously reported 1.8 percent and there were signs in the report of a firmer pace of overall factory activity.

During the full year 2011, factory orders gained 12.1 percent after a 12.9 percent rise in 2010.

Orders for non-defense capital goods excluding aircraft — a closely watched category because it is taken as a sign of businesses' future spending plans — climbed a solid 3.1 percent in December. That followed declines of 1.5 percent in November and 0.9 percent in October.

Shipments for this category also increased by 3.1 percent in December after matching decreases of 0.9 percent in each of the two prior months.

Business spending had been a driver of the recovery since the 2007-2009 financial crisis, which pushed the U.S. economy into a deep recession.

During December, there were widespread gains in key order categories from computers to fabricated metal products and transportation equipment. Orders for electrical equipment were down from November, one of the few categories that declined.

Durable Goods Orders Increase

Orders for U.S. durable goods climbed more than forecast in December, pointing to a rebound in business investment that will help support the world’s largest economy in early 2012.Bookings or long-lasting goods advanced 3 percent after rising 4.3 percent the prior month, the biggest back-to-back gains in almost a year, according to Commerce Department data today.

Growing demand for raw materials from emerging markets and the need to replenish depleted inventories and update equipment are swelling order backlogs at manufacturers like Caterpillar Inc. (CAT) which will keep spurring production. Combined with fewer firings and added confidence, the gains may help shield the U.S. from a slowdown in Europe caused by the region’s debt crisis.
“We’re poised for a bounce-back in the first quarter in terms of business spending,” said Scott Anderson, a senior economist at Wells Fargo Securities LLC in Minneapolis. “Confidence is up, and there are some signs that the labor market is improving. We’re still facing issues with housing.”
Economists projected a 2 percent increase in demand for durable goods, which are those made to last at least three years, according to the median forecast of 78 economists surveyed by Bloomberg News. Estimates ranged from a drop of 2.8 percent to an increase of 6.7 percent.
Orders climbed 10 percent last year after a 15.5 percent gain in 2010.

Intel Experiencing Remarkable Growth Spurt

Intel CFO Stacy Smith says the chip maker expects to grow revenues in the “high single digits” in 2012, considerably higher than the 2.3% Wall Street analysts have been forecasting. Smith made the comment in an interview with Forbes on Thursday afternoon after the company posted better than expected earnings.
Smith notes that the company has been on a remarkable growth spurt, with revenues up 24% in 2011, after a 25% jump in 2010. For all of 2011, he says, the company had “an extraordinary year,” with growth across all of the company’s major lines of business.
In 2012, he says, Intel expects a continuation of the trends the company displayed last year, with continued growth, and “very healthy gross margins.” Smith says the company sees continued strength in emerging markets, further growth in enterprise and data center markets, but muted buying from consumers. He also notes that Intel is on the verge of major product cycles in every part of the business, with new processors for PCs, servers and mobile devices.

Fifth Straight Month that California Jobless Rate Declines

California's unemployment rate fell to 11.1% in December from 11.3% in November, marking five straight months of declines.
Last month, the state gained about 10,700 new payroll jobs, the California Employment Development Department said Friday.At the same time, an earlier tally of 6,600 new jobs created in November was revised upward dramatically to 24,700. In all California created 240,300 new jobs in 2012.
The new numbers suggest that California's economy is gaining traction as it steadily replaces more of the 1.3 million jobs lost in the 2007-2009 recession.
The state unemployment rate was 12.5% at the end of 2010.
"The instinct I'm having is the recovery is finally starting to be real," said economist John Husing, a specialist in the Los Angeles area ports and the hard-hit Inland Empire of Riverside and San Bernardino counties.

"The recovery has legs," said Howard Roth, chief economist at the California Department of Finance. "It's steady, and I think it's going to stick."

Existing Home Sales Up 5% in December

Home sales rose in December to the highest pace in nearly a year. The gain coincides with other signs that show the troubled housing market improved at the end of last year. The National Association of Realtors said Friday that sales increased 5 percent last month to a seasonally adjusted annual rate of 4.61 million, the best level since January 2011 and the third straight monthly increase. For the year, sales totaled 4.26 million,that's up from 4.19 million the previous year.
 Sales are increasing at a time when the market is flashing other positive signs. Mortgage rates are at record-low levels. Homebuilders have grown slightly less pessimistic because more people are saying they might be open to buying a home this year. And home construction picked up in the final quarter of last year.

The median sales price rose 2.3 percent to $164,500 in December.

Hiring has also improved, which is critical to a housing rebound.  The unemployment rate fell in December to its lowest level in nearly three years. And companies are coming off their best six-month stretch for hiring since 2006.
Sales rose across the country in December. They increased on a seasonal basis by more than 10 percent in the Northeast, 8.3 percent in the Midwest, 2.9 percent in the South and 2.6 percent in the West. The glut of unsold homes declined to 2.38 million homes. At last month's sales pace, it would take only 7 months to clear those homes.