Economy in U.S. Grew at 5.7% Pace, Most in Six Years

The 5.7 percent increase in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance since the third quarter of 2003, figures from the Commerce Department showed today in Washington. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.

This makes for a great headline number, especially just days after Obama’s ‘jobs jobs jobs’ SOTU, but reading between the lines this number isn’t as great as it seems. An estimated 3.5-4.0% of this growth is due to businesses restocking shelves after being in freeze mode throughout 2009. This is very typical behavior following recessions. Residential and commercial investment is still low, and until that picks up steam expect unemployment to stay above 10%. There are just too much housing inventory available to make a dent in the current high unemployment rate. Most economists expect 2% growth for the rest of the year, which is historically very low coming off a recession.


World Stock Index Declines for Sixth Day; Greek Bonds Plunge

Greek bonds declined after the Finance Ministry in Athens denied a Financial Times report that it plans to sell 25 billion euros ($35 billion) of debt to China as the government struggles to cut the largest budget deficit in the European Union.

The Markit CDX North America Investment Grade Index rose in its first increase this week, climbing 2 basis points to 96 basis points as of 10:05 a.m. in New York, according to broker Phoenix Partners Group. The index, a benchmark gauge of credit risk that’s linked to 125 companies, rises as investor confidence deteriorates.

Traders are buying protection against defaults on sovereign debt at more than five times the pace of company bonds, as governments fund ballooning deficits. The net amount of credit- default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the increase, with the amount of protection on Portugal rising 23 percent, Spain 16 percent and Greece 5 percent.

The early 2010 gold rally has flatlined with worries of a Greek default on soverign debts. This is giving the dollar more strength against other paper currencies. As uncertainty mounts over Greece, expect the dollar to continue its gains and gold to soften a bit. The long term outlook for gold is still strong though as our leadership in Washington still has shown no serious attempt at reducing its deficit.

Internet Politics From Both Sides Now
Douthat Op-Ed

A year later, some of the Democrats’ advantage is still there. But it’s been crumbling ever since Obama took office. Republican politicians have taken over Twitter. Sarah Palin has 1.2 million followers on Facebook. And in liberal Massachusetts, Scott Brown, the Republican Senate candidate, has used Internet fund-raising to put the fear of God into the Bay State’s establishment.

Last Monday, Brown raised $1.3 million from an online “money bomb,” and his campaign reportedly went on to raise a million dollars a day throughout the week. The race’s online landscape looks like last November’s in reverse: from YouTube views to Facebook fans to Twitter followers, Brown enjoys an Obama-esque edge over his Democratic rival, Martha Coakley.

I think has a lot to do with the love-affair of middle age suburban Americans (traditionally conservative people) with Facebook and Twitter, but this is still an important movement for Republicans.

Health Bill Can Pass Senate With 51 Votes, Van Hollen Says

Even if Democrats lose the Jan. 19 special election to pick a new Massachusetts senator, Congress may still pass a health-care overhaul by using a process called reconciliation, a top House Democrat said.

That procedure requires 51 votes rather than the 60 needed to prevent Republicans from blocking votes on President Barack Obama’s top legislative priorities. That supermajority is at risk as the Massachusetts race has tightened.

“Even before Massachusetts and that race was on the radar screen, we prepared for the process of using reconciliation,” said Chris Van Hollen of Maryland, chairman of the Democratic Congressional Campaign Committee.

“Getting health-care reform passed is important,” Van Hollen said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Reconciliation is an option.”

This could have been done before the concessions to Olympia Snowe and the sweetheart deals to Ben Nelson and Mary Landrieu. Obama could have used the reconciliation process much earlier but insisted on getting 60 Senate votes to pass healthcare reform. The Administration clearly believed the legislative process wouldn’t go this long, wouldn’t be this big of a political boondoggle, and later that the Massachusetts special election wouldn’t be this close. Our president tries to please everyone and it’s killing Democrats.

U.S. Overtakes Russia as Biggest Natural Gas Producer

U.S. output in January through October advanced 3.9 percent from a year earlier to 18.3 trillion cubic feet (519 billion cubic meters), according to the latest Department of Energy data. Russian output, about four-fifths of which comes from state-run OAO Gazprom, plunged 17 percent in the period to 462 billion cubic meters.

“Minimal hurricane disruptions and significant growth in production from onshore shale basins have contributed to the increase in domestic supply,” the Department of Energy’s Energy Information Agency said on its Web site last month.

There has been a lot of new technology, notably hydraulic fracturing, that is helping US companies reach once unreachable gas pockets.

You can view it here.

1. 85,000 job losses was much worse than expected.
2. Temp jobs continue to rise. I think companies are slowly gaining more confidence, and hiring ‘just-in-time labor’ is a good indicator. Hopefully most of these temporary jobs become permanent.
3. Unemployment staying above 10% is a big psychological factor. If it had dipped below double-digits more unemployed workers would be encouraged to start looking for work again (which would likely bring the unemployment rate back over 10% next month, so c’est la vie).
4. Democrats can’t sustain too many reports like this one. If unemployment remains above 10% in November I’d bet the GOP takes back the House.

Rents Signal Rise of D.C., Fall of N.Y.

Rent prices in New York and Washington have long outpaced the rest of the nation — and by a wide margin. In the past, usually after recessions that shrink business and expand government, Washington has moved ahead. But this time, the gap has narrowed sharply and quickly. As recently as two years ago, average rent in midtown Manhattan was $61 per square foot, nearly $20 per square foot higher than the average in Washington’s prime downtown area. According to most commercial-real-estate brokers, the gap has nearly disappeared.

Current estimates put average rents in Manhattan at $60 per sq ft, so the collapse hasn’t been that bad there. But NYC rents fell almost at a 20% annual rate compared to 3% for D.C.

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