Late last month, the official estimate of economic growth for
the fourth quarter was revised upward. Does this signal a strong
finish for 2012 -- or simply set the economy up for yet another
Unfortunately, new figures on retail sales suggest the latter
might be the case. If so, it would mark the third time since the
Great Recession that the U.S. economy has revved its engines, only
to do little more than
spin its wheels
Economic data remains mixed
On December 20, the U.S. Bureau of Economic Analysis announced
that real Gross Domestic Product (GDP) grew at a 3.1 percent rate
in the third quarter of 2012. This marks a healthy increase over
the previous estimate of 2.7 percent growth, and a considerable
increase over the initial estimate of 2.0 percent. Since that first
estimate was made in late October, this measurement of economic
growth has transitioned from mediocre to very promising.
A 3.1 percent growth rate represents a significant improvement
over the second quarter's growth rate of 1.3 percent, and would be
easily the best quarter for economic growth so far in 2012.
However, in recent years the economy has shown flashes of growth
before without being able to follow through. The fourth quarters of
both 2009 and 2011 had GDP growth rates in excess of 4 percent,
only to see the next quarter's growth slow by about half.
In order to really put a dent in unemployment, economic growth
needs to be sustained over a period of several quarters.
Unfortunately, the U.S. economy hasn't been able to string together
back-to-back quarters of 3 percent or better growth since 2007.
A new snapshot of retail spending suggests that the end of 2012
won't be any different. The MasterCard Advisors SpendingPulse
estimate of holiday spending found that buying activity over the
two months preceding Christmas was up only 0.7 percent over the
prior year. This was the slowest growth rate for holiday spending
since 2008, and represents a big disappointment against analyst
estimates of 3-4 percent for this year.
The shadow of the cliff
Why did the economy suddenly put on the brakes in the fourth
quarter? There are a few possible explanations, but a likely
culprit seems to be
concern over the fiscal cliff
. The prospect of take-home pay suddenly dropping might not only
have prompted consumers to be more conservative about holiday
spending, but it also may have influenced businesses to rein in
their expansion and hiring plans.
Outlook for savings accounts
Slow economic growth dampens the outlook for interest rates on
savings accounts. These rates are already near zero, and are
unlikely to rise unless sustained growth gives banks more incentive
to attract deposits.
Based on the latest economic data, bank customers may expect no
relief from low interest rates early in 2013. The only way to
improve those rates at the moment is to actively
shop for better rates
, rather than waiting for rates to rise across the board.