US consumers enjoyed a rush of confidence in January, a survey showed on Friday, calming concerns that a lackluster labor market would crimp sentiment and spending.
Separate data showed industrial production slowed last month from November's hectic pace, while businesses continued to build inventories in November.
Overall, the upbeat tempo of recent data has quashed fears of a sharp slowdown from the frenetic pace of growth in the third quarter, when GDP rose 8.2 percent.
"Fourth-quarter GDP growth looks like coming in around 5 percent and maybe even 6," said Ram Bhagavatula, chief economist at RBS Financial Markets.
"That's an amazing performance and it sets up this quarter for yet more," he said, predicting GDP growth of 4 percent to 5 percent in the first quarter.
The prospect of such blistering growth boosted equities and the dollar. The Dow Jones industrials average finished up 0.44 percent and the NASDAQ gained 1.49 percent. Treasuries ran into profit-taking, but 10-year yields still ended at a lowly 4.03 percent having fallen all the way from a 4.42 percent peak last week.
That drop owes much to signs the Federal Reserve will be patient in raising interest rates.
Richmond Fed president Alfred Broaddus said on Friday he expected tame inflation even with faster growth.
"I think inflation will stay under wraps this year. I'll let you draw your own conclusions about what that may imply for our policy settings," he said, in perhaps the clearest hint yet that interest rates may not rise for months to come.
Expectations of growth this quarter certainly got a boost when the University of Michigan reported its consumer sentiment index leapt to 103.2 this month from 92.6 last month.
That was the biggest monthly jump since 1992 and handily beat forecasts of a modest rise to 94.
The consumer expectations index jumped to 99.5 this month from 89.8, while the current conditions index rose to 108.9 from 97 last month.
"It was a lot bigger jump in consumer confidence than people were expecting," said Wesley Beal, chief US economist at Ideaglobal in New York.
"People are going to get bigger tax return checks in the first quarter as part of the tax cut, and with strong consumer confidence, that improves the consumer spending outlook in the first quarter," he added.
Some thought the improvement might even herald a long-awaited recovery in the labor market.
"Perhaps the labor market improved dramatically in the first couple of weeks of January," said Ian Morris, chief economist at HSBC Securities. "So that could be constructive and could point to a rebound in January payrolls."
Last month's payrolls report shocked economists with a rise of just 1,000 jobs. They had looked for a gain of 130,000 or more.
That same jobs report also showed a sharp fall in hours worked last month, which was why a slowdown in industrial production that month was not a complete surprise.
The output of American factories, mines and utilities rose 0.1 percent last month. Analysts had expected a 0.6 percent gain. The percentage of capacity in use held steady at 75.8 percent.
"Production was merely in line with what payrolls indicated and should not trouble anyone too much," Bhagavatula said. "In fact, with output up and hours down sharply, it implies productivity zoomed again."
Another report on Friday on business inventories showed that stocks at manufacturers, retailers and wholesalers rose 0.3 percent in November.
RSS