The Daily Item, Sunbury, PA

Politics

January 31, 2013

The new ‘R’ word for economy: rebound, not recession

WASHINGTON — The “R” word that economists were using after Wednesday’s news that U.S. gross domestic product contracted in the fourth quarter was rebound, not recession.

The economy will bounce back in the current quarter after plunging defense spending and dwindling inventory growth swamped gains for consumers and businesses in the final three months of 2012, according to economists at JPMorgan Chase & Co., Bank of America and Morgan Stanley. Businesses probably will rebuild stockpiles while consumers and companies keep on spending.

“It would be a mistake to view this drop in GDP — driven by temporary corrections in defense spending and inventories — as a possible harbinger of recession,” Nigel Gault, chief U.S. economist for IHS Global Insight in Lexington, Mass., said in an email. “We expect GDP growth to rebound to around 2 percent in the first quarter.”

The expansion will stay on course thanks to a “mounting” housing recovery, a steadily improving job market and reviving demand for U.S. exports, said Mark Zandi, chief economist in West Chester, Penn., for Moody’s Analytics. He sees GDP expanding 2.1 percent in 2013, after rising 2.2 percent last year.

The 0.1 percent decline in output in the final three months of the year was the economy’s worst performance since the second quarter of 2009, when the U.S. was still mired in a recession, according to figures from the Commerce Department in Washington. It followed a 3.1 percent annualized pace in the third quarter.

After stripping out the inventory and defense data, the “tone of the report was positive,” said Peter Newland, an economist in New York for Barclays Plc. Consumer spending growth picked up to 2.2 percent from 1.6 percent in the third quarter, while business investment accelerated.

The steep drop in military outlays and restrained inventory building last quarter partly was a payback for the previous three months, when they both added to GDP. The slowdown in stockpiling also stemmed from supply-chain disruptions from superstorm Sandy.

Taking the two quarters together puts the “underlying” growth rate at about 1.5 percent, economists David Greenlaw and Ted Wieseman at Morgan Stanley in New York said in a note. That’s the pace they forecast for the first three months of 2013.

“Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors,” the Federal Reserve said Wednesday at the conclusion of a two-day meeting in Washington. “Household spending and business fixed investment advanced, and the housing sector has shown further improvement.”

The central bank said it will keep buying securities at the rate of $85 billion a month “to support a stronger economic recovery.”

The economy’s performance in the fourth quarter was weaker than every forecast in a Bloomberg survey. The median prediction of 83 economists called for a 1.1 percent gain in GDP. Projections ranged from growth of 0.3 percent to 2.1 percent.

Government outlays dropped at a 6.6 percent annual pace, subtracting 1.3 percentage points from GDP. The decrease was led by a 22.2 percent fall in defense that was the biggest since 1972, following the Vietnam War.

Inventories grew at a $20 billion annual rate, down from a $60.3 billion pace in the third quarter. The slowdown cut GDP by another 1.3 percentage points.

The reduced pace of stockpiling means companies “will not have to pull back on production as much in the first quarter if consumer spending does downshift in response to the recent tax increases,” said Michael Feroli, chief U.S. economist at JPMorgan Chase in New York.

As part of a deal worked out with President Obama, Congress on Jan. 1 let the payroll tax revert to 6.2 percent from 4.2 percent while avoiding broad-based income tax increases.

The biggest contributions to GDP in the fourth quarter came from consumer spending, which added 1.5 percentage points, and business investment, which tacked on 0.8 point.

Household expenditures will take a “hit” this quarter as incomes are squeezed by the increase in payroll taxes, economists Michelle Meyer and Ethan Harris at Bank of America in New York said in a note to clients.

An improving job market and rising home prices should help take some of the sting out of the higher payroll taxes, Zandi said.

Government figures to be released tomorrow are projected to show that employers added 165,000 workers to payrolls in January after a gain of 155,000 in December, according to the median forecast of economists surveyed by Bloomberg.

The housing revival is also a plus for the economy. Homebuilding climbed 11.9 percent last year, the best performance since 1992.

“In the United States, we’re becoming increasingly optimistic,” Michael DeWalt, a spokesman for Peoria, Ill.- based Caterpillar, the world’s largest maker of construction and mining equipment, said on a Jan. 28 conference call with analysts. “We expect U.S. housing industry to help the economy in 2013.”

The S&P/Case-Shiller index of property values in 20 U.S. cities increased 5.5 percent in the year through November, the biggest gain since August 2006, according to data released Tuesday.

Housing may lift growth by as much as two percentage points in 2013 via stepped-up construction and increased spending by homeowners heartened by higher property prices, Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities in New York, said in a Jan. 18 note.

A strengthening world economy also should bolster American exporters.

China reported economic growth accelerated in the fourth quarter for the first time in two years, raising prospects that a regional lift will fuel demand for U.S. goods. Developing nations are projected to expand 5.5 percent in 2013, more than last year, while Europe stabilizes, according to projections from the World Bank.

General Electric’s fourth-quarter profit topped analysts’ estimates as demand in emerging markets fueled the aviation and health-care divisions, which helped build a record $210 billion order backlog for the Fairfield, Connecticut-based company.

“We saw real strength in the emerging markets, and the developed regions stabilized,” Chief Executive Officer Jeffrey Immelt said on a Jan. 18 conference call. GE “entered 2013 with substantial momentum.”

 

1
Text Only
Politics
  • With 1 week to go, Sanford subject of attacks

    CHARLESTON, S.C. — Former South Carolina Gov. Mark Sanford can’t seem to escape attacks on the extramarital affair that derailed his political career, which he hopes to revive in a special congressional election that is now a week away.

    May 1, 2013

  • Bombing shifts Mass. Senate race before primaries

    BOSTON — Even before the explosions, polling suggested that Massachusetts voters weren’t excited about the looming special election to replace former U.S. Sen. John Kerry.

    April 28, 2013

  • In a first, black voter turnout rate passes whites

    WASHINGTON — America’s blacks voted at a higher rate than other minority groups in 2012 and by most measures surpassed the white turnout for the first time, reflecting a deeply polarized presidential election in which blacks strongly supported Barack Obama while many whites stayed home.

    April 28, 2013

  • Senate Democrats put off vote on Labor nominee

    WASHINGTON — Senate Democrats have delayed a confirmation vote on Labor Secretary-nominee Thomas Perez after Republicans threatened to use a separate hearing to criticize his handling of a whistleblower case.

    April 24, 2013

  • Sen. Baucus' decision to retire sets stage for majorlegislative changes

     Sen. Max Baucus, D-Mont., one of the most influential congressional figures of his era, announced his intention Tuesday to retire, a move that could produce sweeping changes in the political and legislative landscape over the next two years.

    April 24, 2013

  • Senate friendship born of tragedy beat partisanship

    These days, most dispatches from Washington focus on petty partisanship, posturing, impasses and a political culture that rewards confrontation.

    April 22, 2013

  • Rubio rising

    If Marco Rubio helps pass comprehensive immigration reform, he will have accomplished more as a senator than Barack Obama did.

    April 22, 2013

  • Gun Bill's Failure May Help Immigration Legislation

    WASHINGTON — Here's an odd political reality: The collapse of the gun bill in the Senate last week may well make the passage of immigration reform legislation slightly easier.

    April 21, 2013

  • Senate Planning Vote on Internet Sales Tax

    WASHINGTON — The days of tax-free online shopping could finally be numbered.

    April 21, 2013

  • Advocates of Immigration Reform Fight Back Against Push for Delay

    WASHINGTON — The Senate's leading supporters of overhauling the nation's immigration system sought Sunday to blunt a conservative effort to slow the pace of debate over their bill, saying the Boston Marathon bombings are a reason to move quickly to make changes.

    April 21, 2013

Featured Ads
Politics Video