Economy Watch: GDP Edges Down in 4Q

Real U.S. gross domestic product declined at an annualized rate 0.1 percent during the fourth quarter of 2012, according to the Bureau of Economic Analysis' preliminary estimate.

Real U.S. gross domestic product declined at an annualized rate 0.1 percent during the fourth quarter of 2012, according to the Bureau of Economic Analysis’ preliminary estimate, which it released on Wednesday. The rate was weaker than expected, but more often than not in recent years, quarterly GDP numbers are later revised upward.

A number of factors were a drag on GDP growth during the quarter. Private inventory investment—businesses stocking up—was down, and so was federal government spending, mainly a drop in defense outlays. The troubled economy of Europe meant U.S. exports were down, allowing imports to take a larger slice off GDP.

Yet other parts of the economy are growing, noted the BEA. Most notably, fixed residential investment (people buying houses), nonresidential fixed investment (people buying cars) and personal consumption expenditures (stuff to go in the house and with the car). Motor vehicle output added 0.04 percentage points to the fourth-quarter change in real GDP after subtracting 0.25 percentage points from the third-quarter change.

FOMC stays the course

The Federal Open Market Committee released a statement about its December meeting on Thursday, the upshot of which was that “economic activity [has] paused in recent months, in large part because of weather-related disruptions and other transitory factors.” Also (as usual), the FOMC said that the beast inflation remains tame, that is, remains below the Fed’s 2 percent target, expect for periodic gyrations in energy prices.

Unsurprisingly, the federal funds rate will remain at the 0 percent to 0.25 percent in-the-basement level. The committee did specify that the rate “will be appropriate at least as long as the unemployment rate remains above 6.5 percent,” and the inflation outlook is good. Currently, U.S. unemployment is officially 7.8 percent.

The committee also affirmed, as it has monthly for some time now, that the Fed is going to continue the asset purchases widely known as QE3. Currently the pace of purchases is about $40 billion per month in agency MBS and $45 billion a month in long-term Treasuries. “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities,” the statement noted.

ADP reports stronger job growth

Automated Data Processing released its numbers on private-sector employment on Wednesday in anticipation of the official report on Friday. According to ADP, the private created 192,000 jobs in January, a relatively strong number, and more than December’s revised 185,000 total. Construction, after a long time in the doldrums, is finally added jobs to the overall total, the company says.

Wall Street saw a mild down day on Wednesday, with the Dow Jones Industrial Average losing 44 points, or 0.32 percent. The S&P 500 was down 0.39 percent, and the Nasdaq ending off 0.36 percent.