Ahead of the Fed Interest Rate Decision later today, many
investors and analysts alike worry the U.S. economy probably grew
in the fourth quarter at the weakest pace in almost two years as a
pickup in spending sapped inventories and mitigating exports.
Indeed, Gross domestic product rose at a meager 1.1% annual rate,
down from a steadfast 3.1% gain in the prior three months and the
lowest figure since the first quarter of 2011, according to the
median forecast of 83 economists surveyed by Bloomberg. However,
Consumer purchases, the by and far the largest component of the US
economy, likely has accelerated.
Amidst this slowdown, American households have experienced some
relief in the form of an acute drop in fuel prices and rising
incomes, however they also had to grapple the effects and aftermath
of superstorm Sandy, a bitter presidential contest and seemingly
routine Washington budget battles. The rapid flux in spending may
be difficult to sustain this quarter as a tax increase takes a
bigger chunk from paychecks, one reason why Federal Reserve policy
makers meeting today are projected to press on with plans to inject
even money into the world's largest economy.
"It's the story of a moderately growing economy." suggested Michael
Gapen, a New York-based senior economist at Barclays Plc and former
Fed economist. "The modest-growth environment will keep the Fed on
its current plan." The Commerce Department's report is due at 8:30
EST. Economists' estimates for GDP, i.e. the volume of all goods
and services produced in the U.S., ranged from 0.3% to 2.1%.
Continuing on this trend, later in the day, a statement from Fed
policy makers at the end of their two-day meeting may reveal the
central bank will continue its unprecedented balance-sheet
expansion. According to Bloomberg Economists, "The Federal Open
Market Committee will renew its commitment after determining the
benefits from the program exceed any risk of inflation or financial
However, recent reports signal consumer confidence and spending may
wane this quarter, in part due to changes in US fiscal policy. At
the onset of 2013, Congress let the payroll tax revert to 6.2% from
4.2% whilst avoiding broad-based income-tax increases. Moreover,
lawmakers are now jockeying over spending reductions scheduled for
March 1 that threaten to further slow the economy and
simultaneously provide a cataclysm equities.
At the same time, the sustained gains in housing, a rebound in
business investment and stabilization in global growth that is
benefiting companies such as General Electric Co. (
) will probably help underpin GDP. In particular, the bellwether
General Electric's fourth-quarter profit topped analysts' estimates
as demand in emerging markets fueled the aviation and health-care
divisions, which helped build a record USD $210 billion order
backlog for the Fairfield, Connecticut-based company. "We saw real
strength in the emerging markets and the developed regions
stabilized," Chief Executive Officer Jeffrey Immelt said on a
January 18. GE "entered 2013 with substantial momentum" following
"solid order growth in five of the six businesses." he added.
Finally, record-low mortgage rates are also aiding a rebound in
residential real estate. Combined sales of new and previously owned
properties last year rose 9.9%, the biggest annual gain since 1998.
A report yesterday showed an index of property values in 20 cities
jumped in the 12 months to November by the most in more than six