Sunday, February 27, 2011

Positive economic data mixed with headwinds

On Friday, it was reported that U.S. gross domestic product (GDP) for the fourth quarter increased by 2.8% from last year. This was a downward adjustment from the government’s prior projection of 3.2% growth. The downward revision was attributed to weaker state and local government spending where budget cutting is needed. The University of Michigan/Thomson Reuters survey of consumer sentiment hit a three-year high this month of 77.5. Additionally, the U.S. Federal Reserve recently improved its 2011 economic forecast for 3.4 to 3.9% growth (the previous range was 3.0 to 3.6%).

MY TAKE: Economic forecasting is a tough business. Headwinds to the current forecast include U.S. federal, state and local government spending cuts, further challenges in the housing market, heightened oil prices, persistent unemployment, higher food prices, and uncertainty in emerging economies.

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