GDP growth of 2.6% is a slight disappointment but better than a poke in the eye from a sharp slump

12/23/2010 1:34 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Not as good as wished, perhaps, but I’ll take it.

Yesterday’s (December 22) third revision to the third quarter U.S. GDP numbers pushed growth for the quarter up to 2.6%. The first estimate had put growth at 2% and the second had bumped growth up to 2.5%.

Economists were projecting 2.8% for the quarter on this report, according to a survey by Bloomberg. So this number is a bit disappointing. But considering that in the second quarter the U.S. economy grew by just 1.7%, today’s 2.6% is a good way to exit 2010. And it bodes well for 2011—or at least that’s how the stock market is reading the news today.

The theory of the moment is that the steady upward revisions of the growth rate for the quarter are an indication of rising consumer confidence that will feed into more consumer spending in 2011. Which would push up the growth rate next year because the consumer accounts for 70% of U.S. GDP.

Yesterday’s report showed consumer spending climbed at a 2.4% rate in the fourth quarter. That’s actually a downward revision from last month’s estimate of a 2.8% gain for the quarter. The lower figure came from a downward revision in health-care and financial services spending.

No doubt that consumer spending is pushing up retail sales this quarter and that consumer confidence has improved, but without some growth in personal income and some reduction in unemployment, I’m not sure how far I’d push this argument.

Let’s just say I’m guardedly optimistic for 2011 but the test will come—for the economy and for the stock market—after the reports of results by retail companies in January for the fourth quarter of 2010.

Once that bit of good news is behind us, we’ll be looking at the rest of a cold, dark winter (well, in New York anyway). And the market will be looking ahead and asking its constant question of the economy: What will you do for me next quarter?

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