The “R” word that economists were using after yesterday’s news that U.S. gross domestic product contracted in the fourth quarter was rebound, not recession.
The economy will bounce back in the current quarter after plunging defense spending and dwindling inventory growth swamped gains for consumers and businesses in the final three months of 2012, according to economists at JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. Businesses probably will rebuild stockpiles while consumers and companies keep on spending.
The expansion will stay on course thanks to a "mounting" housing recovery, a steadily improving job market and reviving demand for U.S. exports, said one observer who sees GDP expanding 2.1% in 2013, after rising 2.2% last year.
The 0.1% decline in output in the final three months of the year was the economy’s worst performance since the second quarter of 2009, when the U.S. was still mired in a recession, according to figures from the Commerce Department in Washington. It followed a 3.1% annualized pace in the third quarter.
After stripping out the inventory and defense data, the "tone of the report was positive," said Peter Newland, an economist in New York for Barclays Plc. Consumer spending growth picked up to 2.2% from 1.6% in the third quarter, while business investment accelerated.
The steep drop in military outlays and restrained inventory building last quarter partly was a payback for the previous three months, when they both added to GDP. The slowdown in stockpiling also stemmed from supply-chain disruptions from Superstorm Sandy.
The central bank said it will keep buying securities at the rate of $85 billion U.S. a month "to support a stronger economic recovery."
The economy’s performance in the fourth quarter was weaker than every forecast of economists, the median of which called for a 1.1% gain in GDP. Projections ranged from growth of 0.3% to 2.1%.
Government outlays dropped at a 6.6% annual pace, subtracting 1.3 percentage points from GDP. The decrease was led by a 22.2% fall in defense that was the biggest since 1972, following the Vietnam War.
Inventories grew at a $20-billion U.S. annual rate, down from a $60.3-billion U.S. pace in the third quarter. The slowdown cut GDP by another 1.3 percentage points.
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