Real GDP and Inflation Both Up Slightly

Last week, real fourth quarter 2013 GDP growth and inflation (as measured by the Personal Consumption Expenditure deflator) came in slightly above expectations. Real GDP growth was reported at an annualized rate of +2.6% and inflation at an annualized rate of +0.9%, neither of which is worth getting excited about. Adverse weather, uncertainty surrounding emerging market currencies, concerns about stagnating Chinese economic growth and, finally, the Russian annexation of the Crimean region of Ukraine (and subsequent bilateral sanctions) are together making markets weary. But markets are mercurial and it is unlikely that any of the above concerns will have a sustained impact on US economic growth. Nonetheless, some economists have begun revising GDP growth estimates downward to below +2.0% for the first quarter of 2014. We see several reasons not to be so gloomy, including an improving employment situation and heightened prospects for additional capital expenditures from corporations. As the current concerns begin to subside, improved growth is just around the corner.