US consumers lag behind economy
US consumers lag behind economy
By Alan Rappeport in Washington
Copyright The Financial Times Limited 2010
Published: February 26 2010 14:20 | Last updated: February 26 2010 17:21
http://www.ft.com/cms/s/0/4ebcc9b6-22df-11df-8942-00144feab49a.html
US economic output grew at a faster rate than previously thought at the end of last year, as a resurgence in business investment fuelled the economy’s strongest quarter since 2003, but consumers and the housing market remain points of concern.
However, other data on Friday showed the US housing market was still shaky. The National Association of Realtors said that home resales fell by 7.2 per cent from December to January but they are still higher than the depressed levels of a year ago.
The upgrade of GDP revealed slower inventory liquidation, stronger exports and greater non-residential fixed investment than previously. The downshift in the pace of de-stocking accounted for 4 percentage points of the rise in GDP, but “real final sales” increased more slowly than thought.
Businesses cut inventories by $16.9bn (£11bn, €12.5bn) in the fourth quarter after slashing them by $139.2bn in the prior three months. Investment by businesses was also up, jumping by 6.2 per cent after falling 1.3 per cent in the third quarter.
Economists have welcomed the surge in fourth-quarter growth but say that a rise in output led by inventories is not sustainable because it is a cyclical phenomenon that occurs after a deep downturn. To date, the recovery has been led by a rebound in the manufacturing sector, while consumer spending and confidence remain shaky.
“About two-thirds of fourth-quarter real GDP growth was due to a slowing in the pace of inventory liquidation, and we expect the growth rate of GDP to slow substantially in the first quarter,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics. Most analysts predict a growth rate of 2.2 per cent in the first quarter of this year.
Consumer spending rose by 1.7 per cent in the fourth quarter and was weaker than previously assumed. A separate report on Friday from Thomson Reuters and the University of Michigan revealed that consumers had begun to feel gloomier in February on fears about incomes and job prospects.
Richard Curtin, chief economist of the sentiment survey, said that with the labour market so uncertain consumers are now most focused on building savings and reducing debt. He predicted consumer spending, which accounts for about 70 per cent of economic output in the US, would rise by 1.8 per cent this year.
Despite the recent upturn in growth, the US economy continues to face headwinds and policymakers are debating the best way to unwind government support.
On Thursday Ben Bernanke, chairman of the Federal Reserve, reminded senators in his semiannual testimony that the economy was still “very weak” and that persistent slack in the labour market poses long- term risks. The Fed has also been working to unwind its support of the housing market without destabilising that sector.
The housing market showed promising signs of recovery last year, but more recent data show that residential real estate remains fragile and dependent on stimulus. Distressed and foreclosure sales are weighing on prices, which sit at 2002 levels, and analysts say the market has a “hangover” from the first-time homebuyer tax credit.
By Alan Rappeport in Washington
Copyright The Financial Times Limited 2010
Published: February 26 2010 14:20 | Last updated: February 26 2010 17:21
http://www.ft.com/cms/s/0/4ebcc9b6-22df-11df-8942-00144feab49a.html
US economic output grew at a faster rate than previously thought at the end of last year, as a resurgence in business investment fuelled the economy’s strongest quarter since 2003, but consumers and the housing market remain points of concern.
However, other data on Friday showed the US housing market was still shaky. The National Association of Realtors said that home resales fell by 7.2 per cent from December to January but they are still higher than the depressed levels of a year ago.
The upgrade of GDP revealed slower inventory liquidation, stronger exports and greater non-residential fixed investment than previously. The downshift in the pace of de-stocking accounted for 4 percentage points of the rise in GDP, but “real final sales” increased more slowly than thought.
Businesses cut inventories by $16.9bn (£11bn, €12.5bn) in the fourth quarter after slashing them by $139.2bn in the prior three months. Investment by businesses was also up, jumping by 6.2 per cent after falling 1.3 per cent in the third quarter.
Economists have welcomed the surge in fourth-quarter growth but say that a rise in output led by inventories is not sustainable because it is a cyclical phenomenon that occurs after a deep downturn. To date, the recovery has been led by a rebound in the manufacturing sector, while consumer spending and confidence remain shaky.
“About two-thirds of fourth-quarter real GDP growth was due to a slowing in the pace of inventory liquidation, and we expect the growth rate of GDP to slow substantially in the first quarter,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics. Most analysts predict a growth rate of 2.2 per cent in the first quarter of this year.
Consumer spending rose by 1.7 per cent in the fourth quarter and was weaker than previously assumed. A separate report on Friday from Thomson Reuters and the University of Michigan revealed that consumers had begun to feel gloomier in February on fears about incomes and job prospects.
Richard Curtin, chief economist of the sentiment survey, said that with the labour market so uncertain consumers are now most focused on building savings and reducing debt. He predicted consumer spending, which accounts for about 70 per cent of economic output in the US, would rise by 1.8 per cent this year.
Despite the recent upturn in growth, the US economy continues to face headwinds and policymakers are debating the best way to unwind government support.
On Thursday Ben Bernanke, chairman of the Federal Reserve, reminded senators in his semiannual testimony that the economy was still “very weak” and that persistent slack in the labour market poses long- term risks. The Fed has also been working to unwind its support of the housing market without destabilising that sector.
The housing market showed promising signs of recovery last year, but more recent data show that residential real estate remains fragile and dependent on stimulus. Distressed and foreclosure sales are weighing on prices, which sit at 2002 levels, and analysts say the market has a “hangover” from the first-time homebuyer tax credit.
posted by Carlos T Mock at 4:28 AM
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