US economy sees miniscule growth in fourth quarter of 2012

Thursday 28 February 2013 15.14
US consumer spending was relatively robust during the period
US consumer spending was relatively robust during the period

The US economy barely grew in the fourth quarter although a slightly better performance in exports and fewer imports led the government to scratch an earlier estimate that showed an economic contraction.

Gross domestic product expanded at a 0.1% annual rate, the country’s Commerce Department said, missing the 0.5% gain forecast by analysts in a Reuters poll.

The growth rate was the slowest since the first quarter of 2011 and far from what is needed to fuel a faster drop in the unemployment rate.

However, much of the weakness came from a slowdown in inventory accumulation and a sharp drop in military spending.

These factors are expected to reverse in the first quarter.

Consumer spending was more robust by comparison, although it only expanded at a 2.1% annual rate.

Because household spending powers about 70% of national output, this still-lacklustre pace of growth suggests underlying momentum in the economy was quite modest as it entered the first quarter, when significant fiscal tightening began.

Initially, the government had estimated the economy shrank at a 0.1% annual rate in the last three months of 2012. That had shocked economists.

Today’s report showed the reasons for the decline were mostly as initially estimated. Inventories subtracted 1.55% from the GDP growth rate during the period, a little more of a drag than initially estimated.

Defence spending plunged 22%, shaving 1.28 points off growth as in the previous estimate.

There were some relatively bright spots, however. Imports fell 4.5% during the period, which added to the overall growth rate because it was a larger drop than in the third quarter.

Buying goods from foreigners bleeds money from the economy, subtracting from economic growth.

Also helping reverse the initial view of an economic contraction, exports did not fall as much during the period as the government had thought when it released its advance GDP estimate in January.

Exports have been hampered by a recession in Europe, a cooling Chinese economy and storm-related port disruptions.

Excluding the volatile inventories component, GDP rose at a revised 1.7% rate, in line with expectations.

These final sales of goods and services had been previously estimated to have increased at a 1.1% pace.

Business spending was revised to show more growth during the period than initially thought, adding about a percentage point to the growth rate.

Growth in home building was revised slightly higher to show a 17.5% annual rate.

Residential construction is one of the brighter spots in the economy and is benefiting from the Federal Reserve's ultra easy monetary policy stance, which has driven mortgage rates to record lows.

Weekly US unemployment aid claims drops

The number of people seeking US unemployment aid fell 22,000 last week to a seasonally adjusted 344,000, evidence that the job market may be picking up.

The four-week average of applications dropped 6,750 to 355,000, the Labor Department said today. That was the first drop in three weeks.

Weekly applications are a proxy for layoffs and when they decline, it suggests companies are cutting fewer workers and may be more willing to hire. The four-week average has steadily declined since November. Since then, it has fallen almost 11%.

At the same time, employers have added an average of 200,000 jobs every month from November to January. That is up from about 150,000 in the previous three months. In January, the US economy added 157,000 jobs. The unemployment rate rose to 7.9% from 7.8% in December.

Economists think the rate will slowly decline if hiring continues at last year's monthly pace of 180,000. The unemployment rate fell 0.7 percentage point in 2012.