Economists say slight growth in final months of last year is encouraging as US prepares for $89bn in government cuts
Growth in the US economy inched up in the final months of 2012, wiping away an earlier estimate that the recovery had gone into reverse, the Commerce Department said on Thursday.
Gross domestic product, a measure of all goods and services produced in the economy, increased at a 0.1% annual rate between October and December. The figure was revised up from an initially estimated 0.1% downturn as trade figures proved stronger than first reported. The figure had been widely expected to rise but was lower than the 0.5% economists surveyed by Dow Jones Newswires had forecast.
Paul Ashworth, chief US economist at Capital Economics said: “Headline is weak but the details are encouraging.” He said that home building was clearly on the mend and private domestic sales – “stuff that went off the shelves” – were strong. Massive defence cuts, the largest since after the Vietnam war, had held back growth along with a fall in inventories, goods produced but not sold.
Last quarter’s GDP positive figure means the economy has now grown for 14 consecutive quarters. GDP advanced 2.2% over 2012. The latest figure was equal to the weakest quarterly report since the recovery began in the second half of 2009.
Growth in business investment drove the GDP figures up, increasing by 11.2% in the fourth quarter, better than the already strong initial estimate of 9.7%. Consumer spending rose 2.1%, down from an initial estimate of 2.2%. Residential investment grew at a 17.5%, another signal of recovery in the housing market.
The latest GDP figures come as the US prepares for $89bn in government cuts known as a sequester that are set to start Friday. The cuts will hit government across the board. So far they have not spooked US investors. The Dow Jones Industrial Average hit a 52-week high yesterday and was rising in early trading Thursday.
Polina Vlasenko, a research fellow at the American Institute For Economic Research, said: “The slowdown in GDP growth in the fourth quarter resulted from a decrease in government spending, as well as disruptions related to hurricane Sandy. While the effects of Sandy are transitory, a decline in government spending will continue to hold back the GDP growth, especially if the spending cuts scheduled to begin tomorrow go into effect. But it is not likely to be large enough to pull economy into a recession.”