GDP numbers for the third quarter looked pretty good, fourth quarter looked rotten, put them together and you get… blah.
The Defense Dept., wary of mandatory budget cuts, shot all of its remaining wad in the third quarter, boosting GDP to 3.1%. In the fourth quarter, absent the government-spending boost, GDP actually contracted by a tenth of a percent. Averaged together, the U.S. economy ‘grew’ at a slightly slower pace than the rate of inflation.
Inside the numbers, home prices rose, but sales of existing homes fell, as the inventory of distressed properties attractive to vulture investors dwindled. Household income appeared to pop, but here again, the numbers were skewed by a rush to cash in dividends and capital gains in anticipation of tax increases on the wealthy that, as it turned out, never materialized. Retail sales for back-to-school and the holidays, were subpar up and down the income ladder, including for darlings like Apple and Amazon. The labor participation rate of age-eligible workers continued to scrape along a historic bottom.
The bogey in the first quarter of 2013 will be the additional 2% payroll tax taken from the very people who spend most of their wages. This will have an almost dollar-for-dollar impact on consumption, which represents nearly 70% of total GDP. Add to this the ongoing pressure for federal budget restraint, and the U.S. may find itself flirting with another recession.
You would not suspect that there was anything amiss by the performance of the stock market, however; further evidence- as if we needed any- that the market has become completely unmoored from the ‘real’ economy. Simply put, Fed Chairman Bernanke has declared his determination that the stock market and home values will go up, and that he will “remain vigilant” (Fedspeak for, “print trillions”), until he is satisfied that happy days are here again. Until then, the U.S. will continue to muddle along with an economy that is neither robust nor awful… just blah.