While you were sleeping Surprise drop in US GDP

Thursday 31st January 2013

Wall Street slid after a report showed a surprise contraction in the US economy in the final quarter of 2012.

Gross domestic product fell at a 0.1 percent annual rate in the fourth quarter, after growing at a 3.1 percent pace in the third quarter, according to Commerce Department data. Polls of economists by both Bloomberg News and Reuters had predicted a 1.1 percent increase.

It was the weakest showing since the second quarter of 2009. Still, the underlying data were positive, economists said.

"I'm not going to say growth is particularly strong, but this is not a recessionary signal by any means," Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, told Bloomberg News.

Edelstein's team projected a 0.3 percent gain, the lowest in the Bloomberg survey. "This really was a story about a payback in national defense spending. Consumer-spending growth picked up, fixed investment was fairly strong."

Jim Russell, chief equity strategist for US Bank Wealth Management in Cincinnati, agreed. "Inventories came down and that subtraction is actually positive for the private sector," Russell told Reuters. "A lot of the important components going forth are there, like consumption by individuals and capital spending, and they are looking strong."

Alan Krueger, chairman of the White House Council of Economic Advisers, said the data indicate that spending cuts - as sought by Republicans in exchange for raising the US debt ceiling - would hurt the economic recovery.

"Today's report is a reminder of the importance of the need for Congress to act to avoid self-inflicted wounds to the economy," Krueger said in in a blog post today, according to Reuters.

Indeed, today's jobs data beat expectations. Private payrolls climbed 192,000 in January following a gain of 185,000 in December, according to ADP National Employment data.

All eyes are on January's jobs report, due Friday. The US added 155,000 jobs this month, a report from the Labor Department is forecast to show.

Companies including Amazon.com and Boeing provided earnings that beat expectations.

Shares of Amazon.com climbed 5.4 percent after reporting margins that pleased investors.

Shares of Boeing, recently battered by worldwide safety concerns about its newest commercial airliner, the 787, rose 1.2 percent.

In afternoon trading in New York, the Dow Jones Industrial Average slipped 0.10 percent, while the Standard & Poor's 500 Index fell 0.11 percent. The Nasdaq Composite Index was steady at 3,156.79.

Investors are eyeing the statement that will follow the end of a two-day meeting of US Federal Reserve policy makers later today.

The Fed will probably renew its commitment to continue buying assets into next year, according to a Bloomberg News survey of 44 economists.

In Europe, the Stoxx 600 Index finished the session with a 0.6 percent drop from the previous close. Stocks in London, Frankfurt, and Paris also declined.

BusinessDesk.co.nz

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