Not Such a Weak Report

Reading between the lines of the 4th quarter advance GDP report, I estimate that nonresidential final sales rose at about a 3% annual rate, which is about where I see the potential growth rate (and faster than the potential growth rate that the Fed sees). It thus appears that, in the 4th quarter, fundamental weakness was still localized in the residential construction industry, which will eventually get as small as it's going to get and stop bringing down GDP. While this report doesn't allow one to rule out the possibility that a recession began during the quarter, and it certainly doesn't foreclose the possibility of a recession beginning in 2008, it does, in my opinion, line up on balance as evidence against the likelihood of one.