February 28, 2014

Economy Grew Less Than Thought As 2013 Came To A Close

The U.S. economy grew at a 2.4 percent annual rate in fourth-quarter 2013, the Bureau of Economic Analysis said Friday, as it significantly cut its estimate of how much gross domestic product grew during the last three months of the year.

When the bureau issued his initial estimate for growth in the quarter, it said GDP had expanded at a 3.2 percent annual rate.

According to Bloomberg News, "smaller gains in consumer spending, inventories and exports weighed on an economy already slowed by the 16-day partial shutdown of federal agencies in October and weaker government spending."

Reuters says "consumer spending and exports were less robust than initially thought, leaving the economy on a more sustainable path of modest expansion. ... Consumer spending accounted for a large chunk of the revision after retail sales in November and December came in weaker than assumed. Consumer spending was cut to a 2.6 percent rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at a 3.3 percent pace."

With the revision, the bureau now says that GDP grew 2.5 percent from the end of 2012 through the end of 2013. That's up from the 2 percent growth each of the previous two years.

Update at 10:30 a.m. ET. Things Should Heat Up.

NPR's Marilyn Geewax sends us this analysis and look ahead:

On Christmas Eve, did you end up putting fewer gifts under the tree than you had originally planned?

If so, then you are the culprit.

Your penny-pinching decisions — along with disruptive snow storms — reduced consumer spending. As a result, the Bureau of Economic Analysis on Friday lowered its estimate of economic growth for the period covering October, November and December.

Economists, who spent Friday morning poring over the BEA report, are saying snow-storm-weary consumers pulled back on their holiday spending during those months. The downward revision was "largely traceable to slow retail sales growth during the end of 2013," IHS Global Insight chief U.S. economist Doug Handler wrote in his analysis.

Even though it's still crazy cold in much of the country, most economists are saying growth will heat up a bit in this new year. The GDP is growing at an annual rate of about 2.5 percent now even "with the weather weighing on sales of consumer durable goods, especially cars, and construction," PNC chief economist Stuart Hoffman said in his assessment.

For all of 2014, Hoffman sees growth of about 2.9 percent — a decent rate of expansion, but not great.

Update at 9:40 a.m. ET. What's It Mean For Fed Policy?

James Knightley, an economist at ING Bank in London, tells The Financial Times that:

"Unfortunately, it looks as though first-quarter GDP growth is going to be soft too given the damaging impact from bad weather.

"However, the Federal Reserve appears prepared for this and expect it to be merely a temporary effect. As such we look for the Fed to continue with the tapering of their [bond-buying] program at the March FOMC meeting."

December 06, 2013

For Workers, A Week Stuffed With Good News

Here's something you haven't heard in years: The U.S. economy had a great week.

In recent days, government and industry reports have showed auto and new-home sales are surging, manufacturing is strengthening and the trade deficit is narrowing.  And the U.S. growth rate shot to 3.6 percent in the third quarter — much better than the 2.8 percent originally reported.

Now for the best news of all: The Labor Department said Friday that employers created 203,000 jobs last month, sending the unemployment rate tumbling by three-tenths of a point to 7 percent — the lowest level since 2008.

The Labor report also showed that in November, companies created lots of full-time positions, paid their employees more and attracted discouraged workers back into the labor force.

And this was really encouraging: The job gains were spread over lots of industries, including those that pay more, such as manufacturing and construction. Manufacturers added 27,000 workers, pushing total factory employment to more than 12 million for the first time since 2009. Construction companies added 17,000 workers, a healthy number.

"The November jobs report was quite strong with jobs, wages and average hours worked all up," Stuart Hoffman, chief economist for PNC Financial Services, said in his assessment. "The jobs report is very good news for the American economy and for business profits."

Another government report on Friday, this one from the Commerce Department, showed that personal spending rose 0.3 percent in October from the previous month. Because consumer spending is a key driver of the U.S. economy, that was a positive sign too, especially given the negative disruptions caused by a government shutdown in October.

But since this was a real week, and not a dream sequence, there had to be at least one downbeat note. The Commerce Department said personal income slipped 0.1 percent in October, largely because of a decline in farm incomes.

And of course, the jobs report remains far from rosy for the long-term unemployed. The number of people without jobs for more than 27 weeks remained stuck at 4.1 million in November. That's down 718,000 compared with last year at this time, but still a painfully high number.

The Labor Department data show that over the past year, inflation has risen just 1 percent, and hourly wages have gone up 2 percent, so most workers do have a little more buying power heading into the holiday season.

The stronger labor market seems to be bolstering consumers' outlook. The Reuters/University of Michigan Consumer Sentiment Index, released Friday, released Friday, shows a surge in consumer confidence in early December. The index jumped to 82.5, up from the reading of 75.1 in November. And it was lower-income families who are feeling better, for a change.

"All of the improvement was among households with incomes below $75,000," survey director Richard Curtin wrote in a statement.

That all seems to be suggesting that while shoppers have not been spending wildly so far this holiday season, the U.S. economy may be heading toward better times in the new year.

"The memory of the government shutdown has faded and most Americans seem to be looking ahead with renewed optimism," Chris Christopher, an economist for IHS Global Insight, wrote in his assessment.

The strong reports stirred expectations that the Federal Reserve may soon reduce its monthly bond purchases of $85 billion. At the Fed's October meeting, officials said they are considering ending that program "in coming months."

If that happens, interest rates may tick up to more typical levels as the economy returns to more normal times.

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