Implications: Not much "news" in today's report on GDP, showing the economy expanded at a 3.1% annual rate in the fourth quarter, which ended almost three months ago. The quarter was revised upwardly from the 2.8% previously estimated, slightly more than the consensus expected. More important was that today's data included the first government report on corporate profits. The great news is that overall profits have traced out a full-blown V-shaped recovery from the financial panic and recession and now stand at an all-time record high. Profits were up at a 9.6% annual rate in Q4 and were up 18.3% versus a year before. However, all of the gain in Q4 was due to the domestic financial sector. Profits softened for domestic non-financial companies as well as from the rest of the world. Overall, real GDP increased 2.8% in 2010. We anticipate faster growth this year. Tax rates remain relatively low, monetary policy is loose, and productivity growth remains robust. Consumer purchasing power is rising, a combination of growth in wages and salaries as well as small business profits. Meanwhile, a combination of healthy corporate profits, strong balance sheets, and full expensing for tax purposes, mean business investment should keep accelerating. In addition, we believe home building is very close to the bottom if not there already.
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