February 26, 2020

Economy Ended the Year on an Upbeat Note

The United States economy ended 2012 on a surprisingly sound note as factory output increased and low inflation lifted the buying power of consumers, signaling that the economy may weather this year’s higher taxes.

Manufacturing output rose 0.8 percent in December, the Federal Reserve said Wednesday, a day after retail sales figures pointed to robust consumer spending last month.

“There is every indication that the improvement may be a reflection of a broader pickup in overall economic activity,” said Millan Mulraine, an economist at TD Securities in New York.

The increase in demand for goods appears unlikely to derail the Federal Reserve’s easy monetary policy soon, given the lack of inflation. The Labor Department said consumer prices were flat in December, restrained by a decline in gasoline prices.

That is good news for consumers still smarting from the 2007-9 recession. Weekly earnings rose 0.6 percent last month when adjusted for inflation, the department said.

The earnings increase means family budgets started this month on slightly better footing as payroll taxes rose for all workers and the wealthiest Americans faced higher income taxes.

The tax increases, enacted to reduce the federal budget deficit, are expected to restrain consumer spending through June. Some economists predict higher taxes will subtract a percentage point from economic growth this year.

American financial markets were little moved by the data, although the increases in factory output and real earnings beat the forecasts of analysts polled by Reuters.

Gains in manufacturing appeared broad, tempering the view that some of the growth resulted from a temporary rebound after Hurricane Sandy upset many lives on the East Coast in late October and early November.

The output of motor vehicles and parts jumped 2.6 percent, while production of machinery gained 0.6 percent. Factories made 1.5 percent more computers and electronics. Industrial production rose 0.3 percent.

Still, the data offered a reminder that the trend in factory output, like the broader economy, remains lackluster. Output of consumer goods fell 0.1 percent from November, and overall manufacturing gained by only 0.2 percent in the fourth quarter when measured at an annual rate.

“The manufacturing sector is just about keeping its head above water,” said Paul Ashworth, an economist at Capital Economics in Toronto.

Wednesday’s consumer price data reinforced the view that inflation will not reach the Fed’s 2 percent threshold soon.

“This leaves Ben Bernanke and the Fed with a free hand to continue with ultra-accommodative monetary policy,” said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

The Fed has kept interest rates near zero since late 2008 and has bought about $2.5 trillion in assets to stimulate economic growth and get Americans back to work after the recession.The Fed uses a separate index of inflation that tends to run cooler than the Consumer Price Index. By either measure, annual inflation remains below the Fed’s threshold..

In the 12 months to December the price index increased 1.7 percent, the smallest increase since August. A measure of core prices, which strips out volatile food and energy prices to give a better sense of inflation trends, was up 1.9 percent.

The Fed’s latest beige book, a collection of anecdotal information on regional economic conditions, showed mild growth across the United States in recent weeks but it indicated no likelihood that economic expansion would accelerate.

Article source: http://www.nytimes.com/2013/01/17/business/economy/consumer-prices-unchanged-in-december.html?partner=rss&emc=rss

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