Economic Commentaries

Entries for December 2012


Recent Economic Commentaries noted that the third calendar quarter's rise in business activity would top expectations, but that it would not be sustained. In fact, upon revision real GDP growth was pushed up from 2% to 2.7% annually. This was primarily due to outsized increases in public spending and private sector inventory investment. In coming months as these excesses are corrected, they will join with fundamental weaknesses in consumption and investment to push down the growth rate of overall business activity.

Super storm Sandy and worries over potential tax law changes and public sequestration threats make it difficult to decipher the economy's true course. But when the economy is operating at stall speed, which is where it has been, there is little margin for error. Indeed, we think real GDP growth could fall below 1% annually in the current quarter and remain at this rate into next year.

Consumption and investment trends are concerning. Overall spending fell in September; retail sales were weak in October; and chain store sales were poor in November despite an early start to the holiday shopping season. The storm bears some responsibility, and some recovery in spending should soon begin in its aftermath. But aside from the storm inflation adjusted income growth has declined in recent months and the household saving rate has declined to a depressed 3.4% in November despite weak spending patterns. Cash infusions from mortgage refinancing are slowing as well although some offset should accrue from big year end dividend payments and capital gains realizations.

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