Markets & Economy

The Economy: February 2013



At the end of the month fourth quarter GDP was revised to a positive 0.1% from a negative 0.1%. The improvement coming from stronger net exports and better non-residential and residential construction as housing inventories continue to decline.

This is much lower than the 2% that was expected back in September. In the first quarter of this year we have seen some strengthening despite the Federal tax increases. Durable goods orders in January climbed by the most in one year exceeding the predictions of all economists. Pending home sales have been quite strong as well through February. Consumer spending and sentiment has also remained surprising steady in the face of fiscal tightening. Economists and corporate leader expect the economy to perform even better in the second half of the year. In expectations of increased demand later in the year we expect to see capital expenditures to continue, spurred on by record low interest rates to meet the expected demand. Though Europe still has serious problems, measurements of economic confidence are improving, perhaps signaling an end to their recession. At the same time government spending is weakening as defense spending had its biggest decline since July 2000. This is an indicator of the negative effects of sequestration as spending is reduced by 1.2 trillion dollars over the next decade. Hopefully we will see a global recovery this year which would support our exports which are now at their highest level in 20 years.

The Federal Reserve continues to do its part with is $85 billion a month in asset purchases and near zero interest rate policy. Their actions have helped spark the rebound in housing and increased production of capital goods which is helping support our economy during this period of declining government spending.