Economic growth in the fourth quarter came in far below
expectations, contracting at a 0.1 percent annualized
rate. While consumer and business spending remained
strong, a sharp pullback in government spending
weighed on headline GDP growth.
-Wells Fargo Economics Group
After a busy week of economic data, we are left with a somewhat
mixed picture of the economy. The economy ended the year on a
weak note, contracting at a 0.1 percent annualized rate on news
that government defense spending fell 22.2 percent. Personal
income rose 2.6 percent in December mostly due to accelerated
dividend payments ahead of the 2013 tax policy changes.
Consumer spending remained modest for the month, rising just
0.2 percent. The year started off on the right foot with positive
labor market news. Nonfarm payrolls rose by 157,000 for the
month with the unemployment rate bouncing back to 7.9 percent.
The first of two key reports this week was the fourth quarter GDP
release, which showed that the U.S. economy contracted by
0.1 percent, resulting in a 2.2 percent pace of growth for last year.
Even with the disappointing fourth quarter print, the news was
not all bad. A sharp contraction in defense spending pulled
1.3 percentage points off the headline GDP number; however,
both consumer and business spending remained strong, growing
2.2 percent and 8.4 percent, respectively. Another strong aspect
of the report was residential construction, which climbed
15.3 percent. Besides the large detraction from growth from
government purchases, investments in nonresidential structures,
trade and inventories also pulled down overall growth.