Economic Outlook: A paused recovery

By ANTHONY HALL, United Press International  |  Jan. 31, 2013 at 10:14 AM
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Well, there's a slap in the face.

After a wave of positive economic data involving consumer spending, inflation, weekly unemployment claims, stock prices and housing, the U.S. Commerce Department said Wednesday the economy put on the brakes in the fourth quarter, dropping from a modest gain to a contraction of 0.1 percent.

The department revised its figure for third quarter growth from 2.7 percent to 3.1 percent, an all but heady figure in these trying times. But the fourth quarter figure was a jolt -- or what the U.S. Federal Reserve described as a "pause" in the recent upswing.

Economists had predicted a modest gain of 1.1 percent.

The department said exports declined at a quicker pace than the decline in imports and defense spending was down sharply. In addition, businesses cut deeply into inventories. If they were wrong to do so, there will be an inflated surge in manufacturing in the next three months.

Just around the corner, on Friday, the Labor Department announces its employment situation report, which is expected to come in at a modest 160,000-job gain, which is close to the average for 2012 and is far too mild to move the unemployment rate lower.

That means, if the unemployment rate drops, it will be another false plateau, given the decline will reflect the number of discouraged workers giving up on finding a job rather than the number of opportunities added to the job market.

In a recent survey of economists, more than 50 percent of respondents indicated the housing market would be the primary driver of the U.S. economic recovery in 2013. Additional influences included help from the Federal Reserve, consumer spending and cheaper energy.

Note the lack of anticipated help from legislators in Washington, who are seemingly having trouble getting dressed in the morning these days.

Not only are lawmakers failing to rally around any stimulus plan, their chest-thumping style is likely to have no decisive impact on the size of the U.S. debt, threatening the U.S. credit rating, which will in turn affect borrowing costs. Already, take it or leave it, federal spending dropped sharply in the fourth quarter, with a 15 percent dip overall, the bulk of that coming from a 22.2 percent cut in defense spending, while non-defense spending rose 1.4 percent.

Analysts said U.S. stock markets were already poised for a correction, having climbed for four consecutive weeks. On Wednesday, gains were put on hold, but investors weren't running for the hills. Bond yields rose, but gold prices were stable, closing slightly lower Wednesday. Equities took a hit, but a modest hit, all things considered.

In international markets Thursday, the Nikkei 225 index in Japan rose 0.22 percent while the Shanghai composite index in China added 0.12 percent. The Hang Seng index in Hong Kong gave up 0.39 percent while the Sensex in India dropped 0.55 percent.

The S&P/ASX 200 in Australia shed 0.37 percent.

In midday trading in Europe, the FTSE 100 index in Britain lost 0.28 percent while the DAX 30 in Germany lost 0.27 percent. The CAC 40 in France slipped 0.4 percent while the Stoxx Europe 600 dropped 0.17 percent.

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