OLD Media Moves

More bad economic news

November 30, 2012

Posted by Liz Hester

The economy is getting better. The government says so. But don’t break out the champagne yet. There are several factors that can drag it down.

Here’s the Wall Street Journal take:

The U.S. economy expanded at its fastest pace since late 2011, but those gains could be reversed as superstorm Sandy and the fiscal cliff create a drag during the final three months of 2012.

The nation’s gross domestic product—the broadest measure of goods and services produced in the U.S.—advanced at an annual rate of 2.7% between July through September, the Commerce Department said Thursday. The revised figure is up from the previously reported 2.0% gain and nearly matched economists’ expectations for a 2.8% advance.

But the factors that led to the upward revision—growing inventories, strong federal spending and robust exports—may not persist. Add in other headwinds, and the economy could struggle to grow in the fourth quarter.

“We will have a negative impact on fourth-quarter GDP from the effects of Sandy, but there’s a rebuilding process and we’ll have a positive impact in subsequent quarters,” Dallas Fed President Richard Fisher said in a speech Thursday.

And from the New York Times story:

“It’s a nice headline number,” said Nigel Gault, chief United States economist at IHS Global Insight, “but it exaggerates the underlying momentum in the economy. Sustainable improvements in growth are not driven by inventories.”

What’s more, the revised figures show that spending by businesses on equipment and software declined by 2.7 percent in the third quarter, the first decrease since the end of the recession in mid-2009.

Mr. Gault attributed the weak spending by companies in large part to growing uncertainty among executives about whether Congress and the White House can reach a deal before Jan. 1 that prevents more than $600 billion in automatic tax increases and spending cuts from going into effect early next year. “The No. 1 thing is the fiscal cliff,” Mr. Gault said.

The impasse in Washington has not only dominated the political debate since the election, but also become a leading worry for corporate America. President Obama met with business leaders on Wednesday to seek their support in negotiating a compromise, the second time he has sat down with prominent corporate chiefs this month, while Wall Street has wavered with each zig and zag of the debate.

While many pundits have reminded people that the fiscal cliff is a negotiation, Republicans rejected President Obama’s opening deal. The Wall Street Journal reported:

President Barack Obama made an opening bid in budget talks with Republicans that calls for a $1.6 trillion tax increase, $50 billion in infrastructure spending in 2013 and new power to raise the federal debt limit, a provocative set of demands that Republicans said represented a step backward in efforts to avoid looming tax increases and spending cuts.

The proposal marked an opening salvo in negotiations over the fiscal cliff and represented a particularly expansive version of the White House’s wish list, with a heavy focus on tax increases and spending proposals—including keeping in place a payroll-tax cut and extended unemployment benefits.

Republicans haven’t put any comparable offer on the table. They have indicated willingness to accept $800 billion in revenues over 10 years, half the amount Mr. Obama proposed. And they have sought far more in spending cuts in exchange for their concessions on taxes.

Retailers aren’t doing so well either. Here’s from the New York Times:

Sales at stores open at least a year declined in November at major American store chains, including Macy’s, Nordstrom, Kohl’s and Target, sending a shiver through the retail world Thursday.

The reporting period included Thanksgiving and Black Friday, the official kickoff of the critical holiday shopping season. Early reports regarding those days had been mixed, and the individual retailers’ dim results suggest a big challenge in the coming weeks for retailers.

Over all, the 16 retailers tracked by Thomson Reuters that reported results Thursday recorded a 1.6 percent increase in sales at stores that were open at least a year. Analysts had expected a 3.3 percent jump.

It was the major chains’ results that were most troubling. Target, Kohl’s and Macy’s typically promote holiday shopping heavily, while Nordstrom sales tend to give an indication of how higher-income consumers are feeling.

Lagging retail sales, slowing GDP, and the uncertainty of the nation’s budget all combine for a bleak picture heading into next year. Let’s hope economics reporters can keep up with it all.

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