The American economy finished 2013 on a healthy note, buoyed by strong consumer spending along with an improved trade picture, spurring hopes that the momentum will continue into this year. At an annual rate of 3.2 percent, the growth in the fourth quarter was a deceleration from the pace of expansion in the summer, the Commerce Department said, but was still well above the anemic rate of growth in the first half of 2013. The economy was weighed down early in 2013 by the effects of the tax increases and federal spending cuts imposed by Washington, but surprised many experts by then shrugging off much of the impact of the fall’s government shutdown and debt-ceiling standoff. With the headwinds from federal austerity now easing, many economists hope some of the momentum from the second half of 2013 will continue through 2014. For all of 2013, the economy expanded at a rate of 1.9 percent, well below the 2.8 percent growth pace in 2012.
“What’s encouraging is that consumer spending and business investment improved, showing healthier underlying growth in the economy,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. “The fundamental story for 2014 is still positive.”
While the headline number was encouraging, the details of Thursday’s report neatly illustrate the crosscurrents that have been buffeting the economy, and have prevented it from achieving more sustained gains. For example, although consumer spending grew by 3.3 percent in October, November and December, up from a 2 percent increase in the third quarter, government expenditures plunged 12.6 percent amid the shutdown and automatic budget cuts imposed by Congress at the start of 2013. Over all, the government pullback lowered fourth-quarter growth by 0.9 percentage points, with the shutdown itself shaving off 0.3 percentage points. In addition, the residential housing sector was also a source of weakness, cutting overall growth by 0.3 percentage points. Some of that drop was weather-related, as construction activity halted, but it also represents a slowing of housing gains as mortgage interest rates rose and the sector’s postrecession rebound cooled. The fourth-quarter of 2013 was the first time that housing was a drag on overall growth since 2010. As was the case in the third quarter, inventory additions by businesses lifted growth, adding 0.4 percentage points. Those stockpiles will most likely be drawn down in the first quarter of 2014, slowing the expansion a bit in the current quarter, economists said. The trade picture continued to improve, as exports rose strongly while imports inched up only a bit.
“It’s a pretty solid report with a big burst in consumption at the end of the year, a big narrowing in the trade deficit and some weakness in housing,” said Julia Coronado, chief economist for North America at BNP Paribas.
The fourth-quarter number, which was the Commerce Department’s first estimate of the economy’s performance in the period, was about the same as economists’ expectations. Government statisticians will revise the growth number two more times in the coming months as more data comes in, and it could move up or down. Also Thursday, the Labor Department said weekly applications for unemployment benefits rose 19,000 last week to 348,000, the highest in about a month. But the broader trend in applications remains low. The four-week average, a less volatile measure, increased just 750 to 333,000. The increase follows three weeks of declines. In other economic news, fewer Americans signed contracts to buy previously occupied homes in December. Pending home sales fell to the lowest point since October 2011. The National Association of Realtors says its seasonally adjusted pending home sales index dropped 8.7 percent last month to 92.4.
Just six weeks ago, economists had expected fourth-quarter growth to be in the range of 1.5 percent, but they were pleasantly surprised by healthy gains in consumer spending as 2013 drew to a close. While the overall numbers for the second half of 2013 are encouraging, they still mask big challenges that the economy faces. Total nonfarm payrolls in the United States are still more than 1 million below where they were immediately before the recession, even after nearly four years of slow recovery and a modest pickup in hiring more recently.
And while the unemployment rate has fallen substantially in the last 12 months, to 6.7 percent in December, much of that drop has been caused by workers’ dropping out of the labor force rather than finding jobs.
“Everybody agrees that with each progressive quarter and year, it is getting better,” said Guy Berger, the United States economist at RBS. “But without a meaningful increase in employment, it makes it difficult to power strong growth in the future.”
Source : http://www.nytimes.com