Breathe a tiny sigh of relief, if not exactly contentment: the American economy grew just barely in the last quarter of 2012.
Output expanded at an annual rate of just 0.1 percent, which is basically indistinguishable from having no growth at all and is far below the growth needed to get unemployment back to normal. But at least the economy did not shrink, as the Commerce Department had originally estimated last month, when the first report suggested that output contracted by an annual rate of 0.1 percent.
The department’s latest estimate for economic output, released Thursday, showed that growth was depressed by declines in military spending (possibly in anticipation of the across-the-board spending cuts set to begin Friday) and the amount that companies restored their stockroom shelves.
“The good news with business inventories is that what they take away in one quarter they tend to add to the next,” said Paul Ashworth, senior United States economist at Capital Economics, referring to the measure of this restocking process. “So there’s a good chance that first-quarter numbers will be better than originally thought.”
The output growth number was revised upward from the original estimate partly thanks to updated, and improved, data on business investment and net trade. Imports were lower than previously reported and exports were higher.
Economists expect that government spending will continue to drag on the economy this year, especially if Congress does not avert the spending cuts, which would shave around 0.6 percentage point off growth. Many are hoping that even if the cuts go through, Congress will reverse them in short order.
“They can always change their minds when they have to renew the continuing budget resolution at the end of this month or in April or May,” said Mr. Ashworth. “My expectation is that at most the cuts stay a month or two, and in most departments, with a wink or a nod, they won’t do anything crazy.”
Even if government does lop off $85 billion in the so-called sequester, as current law states, the private sector will offset most of this drag, thanks to the housing recovery and other sources of strength. Forecasts for the first quarter are for annual growth around 2.4 percent to 3 percent.
Monetary stimulus from the Federal Reserve, while under fire from some Republicans, is also helping offset the fiscal contraction.
“With monetary policy working with a lag and still being eased, the boost to the economy is probably still growing,” said Jim O’Sullivan, chief United States economist at High Frequency Economics.
The combination of monetary expansion and fiscal tightening has helped lead to a painfully slow drawdown in the unemployment rate. The jobless rate stood at 7.9 percent in January. The recent end of the payroll tax holiday is also expected to hold back consumer spending, and so job growth as well.
“I think it’s largely steady as she goes for employment,” said Jay Feldman, an economist at Credit Suisse, of the indications from the latest growth report. “I still think we’re in kind of a 175,000-jobs-a-month clip for a while, but with some downside risks later in the year from the sequester.”
Article source: http://www.nytimes.com/2013/03/01/business/economy/us-economy-barely-grew-in-fourth-quarter-revision-shows.html?partner=rss&emc=rss