Fourth quarter GDP for the United States was reported as
contracting 0.1 percent from the prior quarter, below economist
forecasts of of 1.1 percent growth.
The rate of contraction was also well below the 3.1 percent
growth seen in the third quarter and, if first quarter GDP
remains weak, the U.S. risks entering a second recession in four
According to the Bureau of Economic Analysis, "the decrease in
real GDP in the fourth quarter primarily reflected negative
contributions from private inventory investment, federal
government spending, and exports that were partly offset by
positive contributions from personal consumption expenditures
(PCE), nonresidential fixed investment, and residential fixed
investment. Imports, which are a subtraction in the calculation
of GDP, decreased."
The weakening of the dollar in the fourth quarter aided net
exports, as indicated by the BEA. However, the massive build up
in inventories in the third quarter, which added approximately
one percent to third quarter GDP, was drawn down in the fourth
quarter as inventories subtracted 1.27 percent from GDP.
Excluding the change in these inventories, the economy actually
grew 1.17 percent, in line with forecasts.
Personal consumption expenditures were strong in the quarter,
rising 1.52 percent, however government expenditures declined
1.33 percent ahead of the Fiscal Cliff as the government prepared
for budget cuts.
One fear ahead of the Fiscal Cliff was that private investment
in fixed assets would weaken demonstrably as companies lost
confidence in the economy. However, fixed investment rose 1.19
percent in the quarter.
Inflation also remained in check in the most recent quarter,
which could prompt the Federal Reserve keep policy loose for the
foreseeable future. PCE Inflation, the favored measure of
inflation by the Ben Bernanke, rose 1.3 percent in the fourth
quarter after rising 1.4 percent in the third quarter, well below
the Fed's target of 2.5 percent inflation.
Also, core PCE inflation, exempting volatile energy and food
prices, rose 1.1 percent in the quarter after rising 1.2 percent
in the third quarter.
As stated, government spending was weak. The BEA noted that,
"Real federal government consumption expenditures and gross
investment decreased 15.0 percent in the fourth quarter, in
contrast to an increase of 9.5 percent in the third. National
defense decreased 22.2 percent, in contrast to an increase of
12.9 percent. Non-defense increased 1.4 percent, compared with an
increase of 3.0 percent. Real state and local government
consumption expenditures and gross investment decreased 0.7
percent, in contrast to an increase of 0.3 percent."
Personal income in the fourth quarter, a good measure of how
much money individuals pocket from all sources of income, rose a
strong 7.9 percent in the quarter after rising 2.2 percent in the
"The acceleration in personal income primarily reflected a
sharp acceleration in personal dividend income, an upturn in
personal interest income, and an acceleration in wage and salary
disbursements. The sharp acceleration in personal dividend income
reflected accelerated and special dividends that were paid by
many companies in the fourth quarter in anticipation of changes
in individual income tax rates." Look for this measure to reverse
in the first quarter as the effects of special dividends
Markets flinched on the release into a more risk-off mode, as
stock futures and other risk assets declined quickly. S&P 500
futures declined to 1,502.50, a loss of 2.6 index points.
Gold rose on the news to $1,676.90, a gain of 0.86 percent, as
weaker GDP means that the Fed may be forced to ease more than
expected, and oil retreated from earlier gains to $97.72 per
barrel. The USD/JPY fell from 91.30 on the news to below 91
before rebounding to 91.15 and the EUR/USD fell back below 1.3550
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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