Jan. 30, 2013 – NAFCU Staff Economist Curt Long said the government’s initial fourth-quarter GDP report contains “a number of positives” about the state of the economy, including continued growth in residential investment and consumer spending.
The report, released Wednesday, showed that fourth-quarter economic activity contracted by 0.1 percent. However, Long said the unexpected decline is unlikely to signal a double-dip recession as it was caused largely by decreases in defense spending and weaker inventory accumulation. Both decreases may prove to be “one-time hits.”
Bright spots in the report include residential investment, which expanded 0.4 percent, marking the seventh consecutive quarter that the housing market has contributed to GDP growth. Consumer spending also “held up well in spite of fears over the fiscal cliff,” increasing 2.2 percent, Long said. “However, this is on somewhat less-stable footing as consumer confidence has fallen in recent months, and workers are still coming to grips with January’s increase in Social Security taxes.”
Looking ahead, Long said business inventories should reverse course if consumer spending holds up. Meanwhile, defense spending “may also be a one-time hit if Congress can avoid the sequester spending cuts scheduled to take effect March 1, though there is currently no deal in sight.”
Long added that the economy is expected to “muddle through the first half of the year before gathering steam in the second half, but much depends on the policy decisions on Capitol Hill.”