Following a slight dip in December 2009, official advance estimates show retail sales rising again clearly in January (0.5%). The recovery was broadly based. With an increase of 0.7%, the core component relevant for the estimate of goods consumption in the national accounts, i.e. stripping out motor vehicles and parts and sales building materials, expanded even more strongly. Prospects are therefore good that in the current quarter consumption will more or less maintain the moderate upward trend seen in the final quarter of 2009. The pickup in labor income is providing fundamental support.
Meanwhile the December figures on inventory investment now published have turned out better than assumed by the Bureau of Economic Analysis in the advance estimate of Q4 2009 GDP. Together with the now complete data for other demand components, the second estimate (to be published on 26 February) looks set to be revised upwards slightly by 0.2 percentage points to 5.9% (annualized rate).
We are penciling in inventory accumulation in the first quarter. But given the stronger stabilization trends in stocks at the end of 2009 than reported to date, the contribution to growth from inventory investment is likely to be considerably lower. Nonetheless, based on the current data picture, we expect to see solid first quarter GDP growth in the region of 2½% - 3% (annualized rate).