GDP Revised Down But Consumers and Fed Confident Icy Conditions Will Thaw

GDP estimates released last week were lower than expected due to slowing retail activity and reduced government spending. The Bureau of Economic Analysis revised its GDP estimate from real (inflation-adjusted) 3.2% annualized growth down to 2.4%, which was only slightly lower than predictions of 2.5%. Both the Federal Reserve and consumers are shrugging off the lower number. Fed chairwoman Janet Yellen told lawmakers last Thursday that it was not clear if inclement weather caused the recent overall weakness in US economic data or if underlying fundamentals were deteriorating. She indicated that the current pace of reduction in asset purchases will likely continue. The University of Michigan consumer confidence index ticked up slightly. We maintain our view that the US economy will continue to grow in 2014 and that recent data weakness is transitory. For bond portfolios, this means higher interest rates at which to reinvest current income and deeper discounts on newly issued bonds.