Economy Watch: U.S. GDP Expands, But Not as Much as Expected
- Jan 30, 2012
The 2.8 percent annualized growth rate that the U.S. economy experienced during the fourth quarter of 2011 sounds good at first blush, especially when compared with third-quarter expansion of only 1.8 percent (annualized), but economists were quick to point out that growth during the quarter wasn’t unalloyed good news. For one thing, a higher growth rate—at least 3 percent—had been expected, though it’s conceivable that the government will revise the rate upward (two more revisions are due before the end of March).
One concern is that much of the increase was simply a restocking of inventories. Spending on durable goods increased at an annualized 14.8 percent during the fourth quarter, the Bureau of Economic Analysis reported, compared with an increase of 5.7 percent during the third quarter. Nondurable goods increased 1.7 percent in the fourth quarter, in contrast to a decrease of 0.5 percent in the previous quarter, while services increased only 0.2 percent, compared with an increase of 1.9 percent.
A shrinking public sector also continues to be a drag on overall growth as well, something that’s unlikely to change in the near future. Federal government expenditures and investment decreased at an annualized 7.3 percent in the fourth quarter, compared with an increase of 2.1 percent in the third, with defense spending dropping 12.5 percent during 4Q11. State and local government expenditures and investment decreased 2.6 percent for the fourth quarter of 2011, on top of a decline of 1.6 percent during the previous quarter.
Euro-Zone negotiations drag on
Greece and its creditors continued their back-and-forth over the weekend about a bond swap, which would result in Greece owing less than before, and its creditors taking a significant hair cut—a story that’s been dragging along for some time now. But apparently the two sides really are close to a deal.
On Saturday the German government suggested that, whatever the outcome of the negotiations, that Greece should “legally commit itself to giving absolute priority to future debt service” and “accept shifting budgetary sovereignty to the European level” as a condition of further bailouts. Reportedly, this idea has made the Greek government hopping mad, but the official response was simply that Greek fiscal policy would remain the responsibility of the Greeks.
Also over the weekend, Fitch Ratings followed the lead of Standard & Poor’s and downgraded a slew of euro-zone nations, namely Belgium, Cyprus, Italy, Ireland, Slovenia and Spain. These nations, the rating agency noted, are suffering from “the financing risks faced by Eurozone sovereign governments in the absence of a credible financial firewall against contagion.” Getting ready to be the next subjects of investor panics, in other words.
U.S. consumers feeling better
Regardless of what economists might think, U.S. consumers are feeling better for the moment, according to the latest Reuter’s/University of Michigan’s consumer sentiment index, released on Friday. Consumers were feeling better during the second half of January, with the index rising by a single point to a final January reading at 75.0. Any rise means greater optimism, but the late January increase wasn’t nearly as much as the early January spike in sentiment of four points.
Still, the late January gains in the overall index were driven in an upward direction by the leading component of expectations, which experienced a 5.5-point gain to end at 69.1. The current conditions component, at 84.2, was up 4.6 points from December.
Wall Street wasn’t particularly impressed with the preliminary U.S. GDP numbers on Friday and ended the day mixed. The Dow Jones Industrial Average was down 74.17 points, or 0.58 percent, while the S&P 500 lost 0.16 percent. The Nasdaq gained 0.4 percent.