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GDP Is Disappointing, but Doesn’t Spell Certain Doom

Today’s fourth-quarter GDP report was good news, bad news. And there seemed to be much more bad news than good.

The good news: The U.S. economy posted its 10th straight quarter of positive growth, tallying a 2.8% annual rate (preliminary estimate) in the fourth quarter of 2011. Full-year 2011 GDP growth finished at 1.7%, pushing our economy back above levels not seen since the second quarter of 2010, when the U.S. grew at a 3.8% pace.

The bad news: That 2.8% annual rate for the quarter fell short of the 3% that most economists were predicting and investors were hoping for. Futhermore, the quality of the last quarter’ “growth” is suspect since it was fueled by an unexpected buildup in inventories that accounted for as much as two-thirds of the increase.

Here are some of the details:

  • U.S. inventory spending surged to $56 billion after a $2 billion drop in Q3 of 2011.
  • Growth is expected to slow to 1.9% in the first quarter of 2012, since analysts are expecting a cutback in inventories to offset this recent phenomenon.
  • Spending on services rose a measly 0.2%
  • Business investment increased by just 1.7%, down from 15.7% in the third quarter

True, the U.S. saw gathering momentum across 2011, after just 0.4% growth in Q1 of the year. To finish with 1.7% on the year after that lackluster start is noteworthy.

But signs of concern are clear, which led to Wall Street’s disappointment, pushing the Dow Jones Industrials down around 100 points in midday trading Friday.

The multibillion-dollar question, however, is where do we go from here? In many respects these GDP reports are lagging indicators. Add in the fact these numbers are almost always subject to revision, and it’s hard to use them as very good predictors of future growth no matter what the details are.

Besides, the old platitude about it being a “stock-picker’s market” seems to be holding true. A host of companies have thrived in this low-growth environment over the past few years, and 2012 will likely be no different.

We’ve already seen fourth-quarter numbers from many companies that matter — including a phenomenal Apple (NASDAQ:AAPL) earnings report on Tuesday were Apple profits more than doubled year-over-year, and rather disappointing bank earnings from companies including JP Morgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and others despite recent rallies in their stocks.

So the lesson here? Expect more of the same from a struggling American economy — with slow growth, unemployment that will remain relatively high and government debt debates at home and in Europe that will roil the markets with uncertainty.

GDP reports offer nice headlines and numbers that people want to know, but they don’t change the fundamentals of the current economy or the future of stock market performance.

Jeff Reeves is the editor of Write him at editor@investorplace??.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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