We have updated our privacy policy and terms & conditions. Find out more here.

Not As Weak As Spelled Out

By (Philippe d'Arvisenet) |  Market Overview  |  Jan 31, 2013 10:51AM GMT  |   Add a Comment
Not As Weak As Spelled Out
By (Philippe d'Arvisenet)   |  Jan 31, 2013 10:51AM GMT
GDP contracted by 0.1% in Q4, due to a fall in federal government spending on defence. The deceleration is only at first sight, as both households and the business sector accelerated their spending. The beginning of 2013 will be weak, as austerity will weigh on growth, but business investment and job creations are likely to support growth later on

GDP contracted by an annualised 0.1% in the final quarter of 2012, after +3.1% in Q3 and +1.6% on average in 2012H1. The slump seems obvious, but is actually just apparent. Details show that the pace of growth in final private domestic demand in Q4 (+3.1%) remained in line with the recent trend (average of +2.8% since the end of 2010).

The Q3 performance was indeed boosted by unusually large positive contributions from the inventory change (+0.6 pp) and net exports (+04 pp). These boosters faded in Q4 and both components of demand actually cut the overall GDP growth, respectively by 1.2 pp and 0.3 pp.

Additionally, the federal government had markedly boosted its consumption expenditure on defence in Q3 (+15.1%), subsequently cutting back (-25.1% in Q4). While overall government spending had brought a surprisingly large positive contribution to GDP growth in Q3 (+0.7 pp), it renewed with negative reading in Q4 (-1.2%), a trend initiated in early 2010. But the burden is shifting from state and local governments, which were the first to try and limit their growing financing gaps that appeared with the 2008-09 recession as they have to balance their budgets, to the federal government, which tried and stimulated the economy at first. The current debate over the federal government finances indicates that this trend is to continue, as automatic spending cuts are very likely to be implemented in March.

In short, Q3 growth was lifted by temporary factors and the deceleration from Q3 and Q4 is only apparent, as the main engines of growth, i.e. households and business spending, actually accelerated, respectively from +2% to +2.6% and from -1.8% to +8.4%.

The first quarter of 2013 is likely to record a similar performance, as the increase in the payroll tax will weigh on households’ disposable income. Americans are likely to cut on consumption expenditures, especially on durable goods. However, a rebound in job creation is likely to offset that weakness later in the year, while we also expect a continuous improvement in investment spending and exports.

BY Alexandra ESTIOT

To Read the Entire Report Please Click on the pdf File Below.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.