After a quick start to 2013 for economic data and events in recent week, the coming weeks are relatively quiet. The key domestic economic report due out this week is likely to be the latest weekly reading on initial claims, as markets focus on the unofficial start of the fourth quarter earnings reporting season. Five Federal Open Market Committee (FOMC) members are scheduled to speak this week, and almost all of them have spoken out against quantitative easing. Overseas, a full slate of Chinese economic data for December 2012 are due out, as well as key central bank meetings in the Eurozone, the United Kingdom, and South Korea. In addition, both Spain and Italy will auction debt.
On balance, last week’s U.S. economic data on manufacturing, employment, vehicle sales, consumer sentiment, and the service sector for December 2012 exceeded expectations, and kept real gross domestic product (GDP) on track to post a gain of between 1.5% and 2.0% for the fourth quarter of 2012. Any increase in GDP in the fourth quarter of 2012 would mark the fourteenth consecutive quarter of economic growth since the end of the Great Recession in the second quarter of 2009.
Looking ahead into the current quarter (first quarter of 2013), growth may get a boost from a rebound from Superstorm Sandy, but the payroll tax increase that occurred as a result of the fiscal cliff deal signed into law by President Obama will put a dent into consumers’ disposable income in the
quarter, and leave real GDP growth around 2.0%. Looking ahead, failure failure to address the debt ceiling (and lingering sequestration issue) may lead to a recession in early 2013, while a quick resolution to the looming debt ceiling debate along with a “Grand Bargain” to address the nation’s longer term fiscal issues could lift real GDP growth into the 3.0% range for the year.
On balance, the first quarter, and indeed 2013 in general, is shaping up as follows: On the positive side:
- Rebuilding of infrastructure and housing stock damaged by Sandy;
- A continuation of recovery in the housing market;
- A reacceleration in growth in China and emerging markets, which will help boost exports; and
- A rebound in business spending after fiscal cliff and election-related uncertainty hurt business capital spending in the fourth quarter of 2012; should help offset the following negatives;
- Tepid consumer spending;
- Weak federal and state and local government spending; and
- Muted contribution from net exports with Europe still in recession.
Overall, from an economic standpoint, 2013 may look and feel a lot like 2012.