Retail stocks hit a 52-week high Tuesday despite a report from the U.S. Commerce Department that third-quarter economic growth was not as strong as anticipated.
This story first appeared in the December 23, 2009 issue of WWD. Subscribe Today.
The nation’s gross domestic product expanded at an annual rate of 2.2 percent in the third quarter, less than the 2.8 percent previously estimated. GDP fell 0.7 percent in the second quarter.
Investors, however, were looking ahead, and the S&P Retail Index rose as high as 418.19 before ending with a 0.4 percent, or 1.80 point, increase to 415.76. The Dow Jones Industrial Average is within striking distance of its high for the year and climbed 0.5 percent, or 50.79 points, to 10,464.93. Investors were buoyed by a report of strong existing home sales last month.
“The downward [GDP] revision reminds retailers that, although the financial markets are doing quite well, the economy is still lagging behind,” said John Lonski, chief economist with Moody’s Investors Service. “There’s an improvement on the way. The economy is on the mend, but it’s not a V-shaped recovery by any stretch of the imagination.”
Third-quarter growth was fueled by personal consumption expenditures, exports and federal government spending. Imports, which subtract from GDP, increased during the quarter.
“The third-quarter gain marked the start of an economic recovery after a very deep recession,” said Commerce undersecretary Rebecca Blank.
A trimming of third-quarter GDP growth was expected, said Nariman Behravesh, chief economist for IHS Global Insight.
“The major reasons for the downward revision were slightly weaker growth in consumer spending, a bigger downward revision in the growth of business spending on equipment and a larger than previously estimated decline in nonresidential construction,” Behravesh said. “At the same time, a larger upward revision in imports compared with exports resulted in a larger drag from net exports.”
IHS Global Insight predicts that fourth-quarter growth will be about 4 percent, Behravesh said. Initial estimates for fourth-quarter GDP results are expected Jan. 29.
The housing market, which helped lead the country into recession, showed some strength last month as a tax credit for first-time buyers spurred sales. That credit was slated to expire but has been extended into next year.
Existing-home sales rose 7.4 percent last month to a seasonally adjusted annual rate of 6.5 million units, up from 6.1 million in October, according to the National Association of Realtors.
Although the U.S. returned to economic growth in the third quarter, the same could not be said for the U.K. The British Office for National Statistics reported that the country’s economy contracted 0.2 percent in the third quarter.
“The figures confirm that the U.K. has made slower progress exiting the recession than many other major economies,” said David Kern, chief economist at the British Chambers of Commerce. “While most analysts expect a return to positive growth in the next few months it is important to stress that recovery is not yet guaranteed.”
Still, investors traded the FTSE 100 up 0.7 percent in London as the CAC 40 advanced 0.7 percent across the English Channel in Paris. Asian investors were also feeling bullish and pushed the Nikkei 225 in Tokyo up 1.9 percent and Hong Kong’s Hang Seng Index up 0.7 percent.