Economy Watch: 4Q GDP Estimate Pared Down

U.S. GDP wasn’t quite as robust in the fourth quarter of 2010 as the U.S. Department of Commerce had previously estimated. On Friday, growth was recalibrated by the Bureau of Economic Analysis to an annualized rate of 2.8 percent, down from an earlier estimate of 3.2 percent.

Turns out that state and local government spending had declined a little faster than previously thought. Federal government spending was down as well, along with inventory investment by businesses. These negatives were partly offset by an upward revision to exports–the world can’t seem to get enough American items these days it seems–but it wasn’t enough to keep overall GDP from a downward slip.

Will the revision, along with rising gas prices, have a deleterious effect on consumer spending? Maybe, but for the moment, consumers are feeling better. Early last week, the Conference Board reported a spike in consumer confidence; late last week, the Reuter’s/University of Michigan’s Consumer sentiment index spiked as well, rising to 77.5, up 2.4 points from the mid-February reading, and pointing to a reading of nearly 80 for the last two weeks of February.

Those figures could be outdated already. Consumer sentiment has been known to swing rapidly in the face of events, and one thing the world has plenty of now is events that might adversely affect the economy.

The oracle speaks

Famed octogenarian billionaire investor Warren Buffett released his letter to Berkshire Hathaway investors over the weekend, an annual missive read closely by Wall Street and inevitably called “folksy” for its colloquial tone. Folksy with a personal net worth of $47 billion or so, that is. The letter is also read for clues as to who might succeed Buffett (few hints were found this year).

In an age of hand-wringing and predictions of doom for the United States and its interests, Buffet struck an optimistic chord. “The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential … remains alive and effective,” Buffett wrote, adding–and expecting his readers to know some American history–“now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

Speaking more directly to Berkshire Hathaway investors, the Oracle of Omaha said that the company had net income of about $13 billion in 2010, a 61 percent jump compared with 2009. He chalked up much of the company’s recent success to its $26 billion acquisition of Burlington Northern Santa Fe railroad last year, and waxed enthusiastic about railroads as a cure for economic and environmental ills. “When traffic travels by rail, society benefits,” he said.

The vice chairman speaks as well

At the University of Chicago Booth School of Business U.S. Monetary Policy Forum in New York on Friday, Fed Vice Chairman Janet Yellen defended the central bank’s use of “unconventional monetary policy tools” in recent years (called going to “Central Bank Crazy Town” on National Public Radio last month, but central bankers are averse to colorful descriptions). The economy is in slow-mode recovery despite the Fed’s massive asset purchases–$2.6 trillion by the middle of this year–but Yellen posited that “conditions would have been even worse in the absence of the Federal Reserve’s securities purchases: The unemployment rate would have remained persistently above 10 percent, and core inflation would have fallen below zero this year.”

Yellen also spoke at some length about the Fed communicating with the rest of the outside world, techniques for which the central bank is apparently looking to improve. “Recognizing the importance of market expectations to the effectiveness of unconventional policies, the FOMC will continue to seek ways to enhance the clarity and effectiveness of our monetary policy communications,” she said, but did not mention Ben Bernanke’s Twitter account.

Despite the downward revision of U.S. GDP on Friday, Wall Street had a chipper day. The Dow Jones Industrial Average gained 61.95 points, or 0.51 percent, while the S&P 500 advanced 1.06 percent and the Nasdaq was up by 1.58 percent.