Research Team at BBH, suggests that it turns out that US Q4 growth was not as poor as it initially appeared. Key Quotes “The first estimate was 0.7% at an annualized pace. The first revision brought it up to 1.0%. The second revision, released before the weekend, puts it at 1.4%. To be sure, although twice the initial estimate, Q4 GDP is still disappointing. However, if trend growth is around 2%, then an occasional quarter like this ought to be expected. The cause of the revision from 1.0% to 1.4% is worth considering. It was primarily driven by an increase in consumption. Consumption of services were revised from 2.1% to 2.8%. Overall consumption rose 2.4% rather than 2.0%. This is important. Consumption is the main engine of growth. The key to consumption is income, and the key to income is employment. Disposable income has also been bolstered by the drop in gasoline prices. At the start of the year, the tightening of financial conditions, including picked up in the Fed's Survey of Senior Loan Officers, and, of course, the falling stock market, fanned fears of an impending recession. US equities have recovered, financial conditions have eased, the VIX set five-month lows last week, and corporate premium over Treasuries has narrowed. Emerging markets, which had been hemorrhaging, have rallied back, outperforming the developed markets here in Q1 (+2.3% vs. -1.3% using MSCI indices). Now it is the decline in corporate profits that is worrisome for those looking for evidence to support recession fears. We plead mitigating factors before giving the last expansion rites. The drop in profits was exacerbated by the $20.8 bln settlement regarding the Gulf oil spill. Also, the bulk of the decline was due to the energy sector. The good news is that oil prices have stabilized, and technological advances point to some efficiency increases. As we have seen, the weakness of the manufacturing sector coincided with the drop in oil prices and the rise in the dollar. The recent regional Fed manufacturing surveys suggest the long-awaited recovery may be at hand.” For more information, read our latest forex news.