streettalklive.com / By Lance Roberts / Wednesday, January 30, 2013
This morning the media was shocked as the 1st estimate of Q4 GDP dropped to a negative .01% growth rate. This, of course, was “unexpected” by the consensus who had predicted an increase of 1.0%. The good news is that this number will be revised up in the next couple of months due to the impact of Hurricane Sandy, which temporarily boosted production, and the“fiscal cliff“ fiasco which pushed businesses to ramp up durable goods orders in December due to expectations that the investment tax credit would be allowed to expire.
There is also the impact of what is currently the warmest winter weather in 55 years, and I realize that we were writing this last year at this time as well, which is skewing the economic data higher due to the impact of the seasonal adjustments. These factors all led to increases in consumer spending, housing and capital spending. Given the effects of these artificial supports on economic production it is very likely that GDP for the 4th quarter of 2012 will push back toward 1% by the time the final data is in.
On the negative side were sharp drops in government spending at all levels but primarily in defense. Businesses, which are much more worried about the economy due to weak end demand, drained inventories and the continuing recession in the Eurozone hit exports. The chart below shows these net changes by category between Q3 and the 1st estimate of Q4 GDP.