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Economy Probably Slowed as U.S. Spending Gain Drained Stockpiles

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Economy Probably Slowed as U.S. Spending Gain Drained Stockpiles
Record-low mortgage rates are aiding a rebound in residential real estate. Combined sales of new and previously owned properties last year rose 9.9 percent, the biggest annual gain since 1998. Photographer: Sam Hodgson/Bloomberg

Jan. 30 (Bloomberg) -- The U.S. economy probably grew in the fourth quarter at the weakest pace in almost two years as a pickup in spending drained inventories and exports slumped, economists said before a report today.

Gross domestic product rose at a 1.1 percent annual rate, down from a 3.1 percent gain in the prior three months and the least since the first quarter of 2011, according to the median forecast of 83 economists surveyed by Bloomberg. Consumer purchases, the biggest part of the economy, probably accelerated.

Bolstered by a drop in fuel prices and rising incomes, households overcame superstorm Sandy, a bitter presidential contest and Washington budget battles. The gain in spending may be difficult to sustain this quarter as a tax increase takes a bigger chunk from paychecks, one reason why Federal Reserve policy makers, meeting today, are projected to press on with plans to pump money into the world’s largest economy.

“It’s the story of a moderately growing economy,” said Michael Gapen, a New York-based senior economist at Barclays Plc and former Fed economist. “The modest-growth environment will keep the Fed on its current plan.”

The Commerce Department’s report is due at 8:30 a.m. in Washington. Economists’ estimates for GDP, the volume of all goods and services produced in the U.S., ranged from 0.3 percent to 2.1 percent.

At 8:15 a.m., figures from the Roseland, New Jersey-based ADP Research Institute may show companies added 165,000 workers to payrolls in January following a 215,000 gain the prior month, according to the Bloomberg survey median.

Fed Meeting

Later in the day, a statement from Fed policy makers at the end of their two-day meeting may say the central bank will continue its unprecedented balance-sheet expansion. The Federal Open Market Committee will renew its commitment after determining the benefits from the program exceed any risk of inflation or financial instability, according to economists surveyed by Bloomberg Jan. 24-25.

The GDP data may show consumer spending grew at a 2.1 percent annual rate last quarter after advancing 1.6 percent from July through September, economists predicted.

Retail sales rose more than forecast in the final month of the quarter, helped by job gains, rising house values and cheaper gasoline prices in addition to discounting by chains such as Macy’s Inc.

Automobile purchases also are spurring demand. Cars and light trucks sold at a 15.3 million annual rate in December after 15.5 million the prior month, the best back-to-back showing since early 2008, according to Ward’s Automotive Group.

Spending Outlook

Recent reports signal consumer confidence and spending may cool this quarter, in part due to changes in fiscal policy. Congress on Jan. 1 let the payroll tax revert to 6.2 percent from 4.2 percent while avoiding broad-based income-tax increases. Lawmakers are now wrangling over spending reductions scheduled for March 1 that threaten to further slow the economy.

At the same time, sustained gains in housing, a rebound in business investment and stabilization in global growth that is benefiting companies such General Electric Co. will probably help underpin GDP.

General Electric’s fourth-quarter profit topped analysts’ estimates as demand in emerging markets fueled the aviation and health-care divisions, which helped build a record $210 billion order backlog for the Fairfield, Connecticut-based company.

“We saw real strength in the emerging markets and the developed regions stabilized,” Chief Executive Officer Jeffrey Immelt said on a Jan. 18 conference call. GE “entered 2013 with substantial momentum” following “solid order growth in five of the six businesses,” he said.

Housing Market

Record-low mortgage rates are aiding a rebound in residential real estate. Combined sales of new and previously owned properties last year rose 9.9 percent, the biggest annual gain since 1998. A report yesterday showed an index of property values in 20 cities jumped in the 12 months to November by the most in more than six years.

Investors are being encouraged by signs the U.S. expansion is holding up. The Standard & Poor’s 500 Index climbed 0.5 percent yesterday to close at a five-year high.

Capital spending, which fell in the July-September quarter for the first time in more than three years, also stabilized toward the end of 2012, the GDP report may show. Orders for non-defense capital goods excluding aircraft, a proxy for future corporate spending on items like computers, engines and communications gear, climbed in December to cap the biggest three-month advance since mid-2011, according to data this week.

Caterpillar Optimistic

Caterpillar Inc., the world’s largest maker of construction and mining equipment, is among manufacturers expecting an improving outlook.

“In the United States, we’re becoming increasingly optimistic,” Michael DeWalt, a spokesman for Peoria, Illinois-based Caterpillar, said on a Jan 28 conference call with analysts. “We expect U.S. housing industry to help the economy in 2013.”

A jump in America’s trade deficit and a slower pace of stockpiling, which restrained growth last quarter, are unlikely to be repeated this quarter.

“Most of the drag last quarter came from net trade and inventories, two of the traditionally most volatile and heavily-revised numbers, so we’re willing to overlook those,” Barclays’ Gapen said.

                      Bloomberg Survey
=====================================================
                               ADP      GDP Personal
                           Payroll   Annual Consump.
                            ,000’s     QOQ%     QOQ%
=====================================================
Date of Release              01/30    01/30    01/30
Observation Period            Jan.     4Q A     4Q A
-----------------------------------------------------
Median                         165     1.1%     2.1%
Average                        168     1.1%     2.0%
High Forecast                  235     2.1%     2.5%
Low Forecast                   120     0.3%     1.2%
Number of Participants          38       83       26
Previous                       215     3.1%     1.6%
-----------------------------------------------------
4CAST Ltd.                     150     1.1%     ---
ABN Amro Inc.                  165     1.3%     ---
Action Economics               140     1.0%     ---
Ameriprise Financial Inc       185     1.3%     2.4%
Banca Aletti & C spa          ---      1.2%     2.5%
Bank of the West               145     0.7%     1.9%
Bank of Tokyo- Mitsubishi     ---      2.0%     ---
Banorte-IXE                    200     1.2%     ---
Bantleon Bank AG              ---      1.0%     ---
Barclays                      ---      1.5%     2.3%
Bayerische Landesbank          180     1.7%     2.4%
BBVA                          ---      1.5%     1.7%
BMO Capital Markets            165     1.5%     ---
BNP Paribas                    150     1.3%     ---
BofA Merrill Lynch Resear      155     1.0%     ---
Capital Economics             ---      1.5%     ---
CIBC World Markets            ---      1.4%     ---
Citi                          ---      0.7%     2.4%
ClearView Economics           ---      0.9%     1.5%
Commerzbank AG                 150     0.8%     ---
Credit Agricole CIB           ---      0.8%     2.3%
Credit Suisse                 ---      1.0%     2.1%
Daiwa Securities America      ---      0.8%     ---
DekaBank                      ---      0.9%     ---
Desjardins Group              ---      1.0%     ---
Deutsche Bank Securities       170     1.3%     ---
Deutsche Postbank AG          ---      1.5%     ---
First Trust Advisors          ---      0.9%     2.3%
FTN Financial                 ---      1.1%     ---
Goldman, Sachs & Co.          ---      1.5%     ---
Hammer Partners SA            ---      1.2%     ---
Helaba                        ---      1.5%     ---
Herrmann Forecasting LLC      ---      0.9%     ---
High Frequency Economics       180     0.8%     ---
HSBC Markets                   152     0.8%     2.3%
Hugh Johnson Advisors          165     1.9%     ---
IDEAglobal                     150     1.6%     1.7%
IHS Global Insight            ---      0.3%     ---
Informa Global Markets         140     0.9%     ---
ING Financial Markets          120     0.8%     ---
Intesa Sanpaolo               ---      0.8%     ---
J.P. Morgan Chase             ---      0.5%     2.1%
Janney Montgomery Scott L      179     0.8%     1.5%
Jefferies & Co.                165     1.0%     ---
John Hancock Financial         200     1.1%     1.3%
Landesbank Berlin             ---      1.5%     ---
Landesbank BW                  200     1.4%     ---
Lloyds Bank Wbm                171     1.0%     ---
Market Securities             ---      1.1%     ---
MET Capital Advisors          ---      1.1%     ---
Mizuho Securities              175     ---      ---
Modal Asset                   ---      1.8%     ---
Moody’s Analytics             ---      1.7%     ---
Morgan Stanley & Co.          ---      0.5%     ---
National Bank Financial       ---      0.7%     ---
Natixis                        170     1.4%     1.8%
Nomura Securities Intl.        180     1.2%     ---
Nord/LB                        160     1.6%     ---
OSK Group/DMG                 ---      1.3%     2.1%
Oxford Economics Ltd          ---      0.8%     ---
Pantheon Macroeconomic         150     0.5%     2.1%
Pierpont Securities LLC       ---      0.5%     2.2%
PineBridge Investments        ---      1.9%     ---
PNC Bank                      ---      2.0%     ---
Prestige Economics            ---      2.1%     ---
Raiffeisenbank Internatio      175     1.2%     1.2%
Raymond James                  165     1.4%     ---
RBS Securities Inc.           ---      0.9%     ---
Regions Financial Corp        ---      1.4%     ---
Renaissance Macro Researc      150     0.7%     2.3%
Scotiabank                    ---      1.2%     ---
SMBC Nikko Securities          230     1.1%     1.5%
Societe Generale               235     0.7%     2.3%
Southbay Research             ---      1.2%     ---
Standard Chartered             165     1.3%     ---
Stone & McCarthy Research     ---      1.5%     ---
TD Securities                  125     0.6%     1.4%
UBS                           ---      0.7%     2.1%
UniCredit Research            ---      1.2%     ---
Union Investment               180     1.4%     ---
University of Maryland         150     1.0%     ---
Wells Fargo & Co.             ---      1.0%     ---
Westpac Banking Co.           ---      1.1%     ---
Wrightson ICAP                 195     1.0%     ---
=====================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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