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Federal Reserve’s Bullard Says Holiday Season Points To Stronger GDP In 2011…

Federal Reserve Bank of St. Louis President James Bullard said on CNBC today that the holiday season points to stronger GDP growth (than previously thought) in 2011.  Bullard said, “The holiday season is looking good, retail sales are good. That bodes well for the current quarter and the coming quarters.” His comment echoes our often-cited view that a strong holiday season is often a precursor of strong economic growth in the subsequent year (and vice versa).  The logic for this view is simple: (1) Retail sector inventories need to be rebuilt after the season and the holiday season sets the tone, direction and magnitude for the level of inventories that is needed ahead to meet consumer demand.  (2) The “multiplier and accelerator effects” (from economics 101) suggests that stronger consumption will “feedback” to the broader economy and the specific sector itself in subsequent periods–also adding to the better economic performance for the economy as a whole.  Finally (as we wrote in our economic commentary in the latest issue of Retail Real Estate Business Conditions), the 2011 payroll tax holiday–which boosts disposable personal income by $112 billion in 2011 will further spur economic activity and, in particular, boost consumer spending by about a percentage point.

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