Good News on the Economic Front

Economists are upgrading the outlook on the US economy because of all the recent great economic data:

Economists are hastily upgrading their forecasts for the US economy after a series of surprisingly strong reports suggesting the so-called “soft landing” may be over and growth is accelerating.

Over the past week, surprises have come in stronger-than-expected reports on US job creation, the trade balance and retail sales — all key contributors to economic activity.

Lehman Brothers chief US economist Ethan Harris on Friday boosted his forecast for fourth quarter 2006 growth to an annualized rate of 3.3 percent, a leap from the firm’s prior call for just 2.0 percent growth.

“After slowing in November, the economy seems to have regained its stride,” Harris said.

“With the last of the major data in, we are now revising fourth quarter GDP to an above-trend 3.3 percent. A wide range of indicators have been stronger than expected. Most important have been the strong consumption data and the surprising improvement in the trade balance.”

The latest data defy predictions that the slump in real estate would filter into other areas of the economy, notably consumer spending.

The latest data showed US employers added a healthy 167,000 new jobs in December, with unemployment holding at a low 4.5 percent. Average wages were up 4.2 percent annually.

A separate report Friday showed US retail sales increased 0.9 percent in December.

Retail sales are closely watched as consumer spending accounts for about two-thirds of US economic activity. Some analysts have theorized that slumping housing prices may crimp spending in a reversal of the so-called wealth effect.

The higher retail sales “will juice up overall real growth in the fourth quarter to about 3.0 percent — a substantial improvement from only 2.0 percent in the third quarter” said Brian Bethune at research firm Global Insight.

Even the US trade deficit, long a source of weakness, improved in the latest report to 58.2 billion dollars in November, as exports increased.

Update: While reading some of this post’s comments, I remembered a post Lorie wrote about three weeks after the Democrats won the elections in November. Lorie was spot on, wasn’t she?

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