Monday, 30 January 2012

US economy maintains growth while eurozone economy stabilises

Last week's economic data should further ease concerns of a global economic recession.

The United States economy showed good growth at the end of last year. The Commerce Department reported last week that real gross domestic product increased at an annual rate of 2.8 percent in the fourth quarter, faster than the 1.8 percent rate in the prior quarter.

The acceleration in growth, however, was exaggerated by an increase in inventories. The GDP report showed that private inventories added 1.94 percentage points to the fourth-quarter growth rate after having subtracted 1.35 percentage points from the third-quarter growth rate.

The underlying momentum in the economy is probably better reflected by personal consumption expenditures, which increased 2.0 percent in the fourth quarter compared with an increase of 1.7 percent in the third.

Perhaps more encouraging was the solid 10.9 percent growth in residential investment. Growth in residential investment usually leads growth in the economy as a whole.

Another indicator that pointed to a positive outlook for the US economy was the Conference Board's leading economic index. This index increased 0.4 percent in December to 94.3 after having increased 0.2 percent in November and 0.6 percent in October.

The eurozone economy has not fared as well as the US, being widely expected to have contracted in the fourth quarter. However, economic data on the euro area last week showed that things may have improved since then.

The flash reading of a composite output index for the euro area compiled by Markit Economics rose to 50.4 in January from 48.3 in December. It was the third consecutive increase in the index and the first time the index has been in positive territory in five months.

Among the sector indices, the services PMI rose to 50.5 in January from 48.8 in December while the manufacturing PMI rose to 48.7 from 46.9.

In his comments on the data, Markit's chief economist Chris Williamson said that the eurozone economy appears to have stabilised in January and that “a slide back into recession may be avoided”.

Also pointing to a better start to the year was the Ifo index of German business confidence, which rose to 108.3 in January, a five-month high, from 107.3 in December.

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