Some Good News This Week

With their third swing at the plate the Commerce Department has increased their estimate of third quarter economic growth from 3.6 to 4.1%. The new estimate showed the gross domestic product, the broadest measure of all goods and services produced in the economy, expanding at the fastest pace since the fourth quarter of 2011 and the second-fastest since the recovery began in mid-2009, according to the WSJ.

In another major development, Ben Bernanke, Chairman of the Federal Reserve, said they would begin reducing or tapering the $85 billion monthly bond purchases by $10 billion in January to $75 billion a month in combined mortgage-bond and Treasury purchases. He also said reiterated that the Fed would maintain interest rates near zero “well past the time” unemployment falls below their established target of 6.5%.

Markets took the news quite in stride. The broad stock market as measured by the Vanguard Total market is up 2.16% while the S%P 500 representing the nation’s largest companies is up 2.65%. Treasuries were down a mere .34% on the news.

According to the WSJ and Bloomberg, most economists expect GDP growth to dip a bit in the current quarter, as businesses sell off their inventories, and then to pick up in 2014. Federal Reserve officials said this week they expect GDP to grow between 2.8% and 3.2% in 2014, and to pick up further in 2015. They forecast growth would be close to 2% for 2013. A Wall Street Journal survey of economists earlier this month showed expectations on average of between 2.5% to 3% growth in 2014.

The Commerce Department attributed some of the growth in GDP to higher than estimated consumer spending. Earlier estimates were 1.4%, but revisions took the number to 2% for the summer months. It would be a welcome sign of strength if that strength in spending were to continue into this Christmas selling season.

The GDP report also showed that inflation pressures remain muted to slightly weaker as they lowered their estimate from earlier this month. The price index for personal consumer expenditures, the Fed’s preferred gauge of inflation, grew at an annual rate of 1.9% in the quarter instead of 2.0%. Core inflation, which excludes volatile food and energy prices, climbed at a 1.4% annual rate instead of 1.5%.

If we escape inflation from the Fed’s unprecedented money pumping it will be the first time a major economy does so, but we can hope. And at least they’ve begun to turn down the pump.