It is quite a conundrum: US economy, it was simultaneously shrinking and forging ahead at the end of 2012.
I noticed the same: Brazil economy was, both, not growing and growing.
In the case of Brazil I am speculating if the capital gains from higher interest rates was peeled off GDP and appeared as GDP, overall, not growing. That means finance not contributing to Brazil's real economy. Only that the real economy was growing along nicely. See low unemployment rate.
Could it be that the real productive US economy is growing but the financial sector is shrinking?
US seen to plod along despite data clash
By Robin Harding and James Politi in Washington
It is quite a conundrum: according to the two most important bits of data on the US economy, it was simultaneously shrinking and forging ahead at the end of 2012.
On Wednesday, growth data for the fourth quarter of 2012 showed an unexpected annualised fall of 0.1 per cent, creating a mini-panic about an economic slowdown.
Yet on Friday, payrolls data for the same period were revised sharply upwards, to show 247,000 new jobs in November – close to the fastest pace of jobs growth all year. Panic over.
Although this is the kind of confusion that gives statisticians a bad name, the reality, most economists say, is fairly simple. The gross domestic product data were distorted by some one-off factors, the payrolls data were as expected, and the US economy continues to plod along at the same mediocre pace as it has since 2009.
“It’s not accelerating and it’s not decelerating, despite the funky number we got in the fourth quarter,” says Kevin Logan, chief US economist at HSBC in New York.
“I think it’s more of the same,” says Scott Brown, chief economist of Raymond James & Associates. “We’ll get GDP growth in the 1.5-2 per cent range and we’ll continue to see slow progress on the labour market.”
Economists were caught off guard by the drop in GDP, but it was all driven by two volatile factors: a reduction in inventories and the biggest quarterly decline in government defence spending since the 1970s.
Both of those knocked 1.3 percentage points off total growth. The defence cuts may reflect fears of further cuts to federal spending, but add those exceptional factors back in, and it no longer looks like the US is in any danger of a recession.
Indeed, demand from both consumers and businesses was fairly strong, adding to a sense among economists that the fundamentals of the economy are getting better.
“Cyclically there’s no question that the economy is continuing to improve, but the hole was so deep that this level of activity is not satisfying,” says Neal Soss, a senior economist at Credit Suisse.
“I think a lot of things have improved relative to where we were,” says James Bullard, president of the St Louis Fed.
Mr Bullard notes a list of uncertainties that were present a year ago – such as the outcome of the US election, the fiscal cliff, and the risk of an economic hard landing in China – but have been at least partially resolved.
“The biggest thing is Europe,” he says, adding that success in stabilising eurozone sovereign debt markets “has been a surprise to the upside”.
The removal of some of those headwinds – another is the housing market, which has gone from being a big drag on growth and jobs to boosting them – might be leading to faster growth were it not for a new headwind.
That is fiscal policy, with the removal of a payroll tax break at the start of the year weighing on consumer incomes, and the prospect of further cuts to federal spending at the start of March.
Still, a jump in the Institute for Supply Management’s index of manufacturing activity, combined with the upward revision in jobs growth to an average pace of 201,000 per month in the fourth quarter of last year, suggests that the economy kept going despite uncertainty about fiscal policy.
“All those stories about uncertainty about the election and the fiscal cliff weren’t borne out in the real world,” says Mr Soss. “It didn’t work out that way.”
“Better exports, a swing from inventory liquidation to building, and backlogs on the brink of turning positive show that the manufacturing sector might be about to shift to a higher gear,” said Michael Montgomery, economist at IHS Insight.
“The underpinnings for more solid growth have fallen into place, but it is premature to call it more than token firming as more challenges lie ahead,” he added. |
