Output expanded at an annual rate of 0.1 percent, which is basically indistinguishable from no growth at all and which is far below the growth needed to get unemployment back to normal. But at least the economy did not shrink, as the Commerce Department estimated in January, when the first report suggested that output had contracted at an annual rate of 0.1 percent.
The department’s latest estimate for economic output, released on Thursday, showed that growth was depressed by declines in military spending (possibly in anticipation of the across-the-board spending cuts that are to begin on Friday) and in how much companies restocked 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, chief North American 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 growth in output 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 government spending to 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 hope that even if the cuts go through, Congress will quickly reverse them.
“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 call for annual growth of 2.4 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 decline 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 with it job growth.
The Labor Department reported on Thursday that first-time claims for unemployment benefits decreased by 22,000, to 344,000, last week. The less-volatile four-week moving average fell to 355,000 from 361,750.
“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
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