Good Data Moves Markets, USD
The Commerce Department and the US Labor Department topped analyst’s expectations and added further momentum to the US equity markets and to the US dollar. The news is a boost to the fragile recovery and reflects consumer confidence that overrides the dysfunction in Washington. That is another story.
On Thursday, the Commerce Department reported that the current flow of goods, services and investments to out of country sources, called the “account deficit,” fell to $110.4 billion in the fourth quarter after an upward revision to $112.4 billion in the third quarter 2012. Projections had been that the fourth quarter current account deficit would expand to $112.8 billion.
The highest current account deficit was registered in the fourth quarter 2005 at 6.5 percent of GDP. The deficit in the fourth quarter 2012 2.8 percent GDP, the lowest since the second quarter 2009 (2.5%).
The breakdown of the deficits in the 4th quarter in the three sectors are:
- Deficit on Goods – $180.60bn
- Deficit on Services – $52.2bn
- Surplus on Income – $52.4 up $5.8bn from quarter 3.
Big Surprise on Retail Sales
The wrangling over the fiscal cliff, the budget and the expiration of the payroll tax holiday did not deter the US consumer, who composes about 70 percent of the nation’s GDP. The surprising demand in retail sales is believed to be linked to more strength in the employment sector.
While employment is still the biggest challenge for the recovery, there appears to be some stabilization that the country’s politicians cannot derail. Retail sales increased 1.1 percent in February, the largest gain since September 2012. January retail sales were revised upwards to show a 0.2 percent gain. The February projection had been 0.5 percent.
Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh told Reuters that, “Consumers have been less fazed by the increase in taxes than we expected. Because the labor market has been doing a bit better than we were expecting, people are feeling a bit confident and not cutting back their spending.”
GDP Projections Improve
This data has encouraged economists to revise their GDP projections for the first quarter. GDP in the fourth quarter was 2.1 percent. Sage a neutral read for the first quarter, expectations are that the economy will post much needed gains in the current quarter.
The Commerce report indicates January expansion in business inventories to the highest levels in 18 months. Retail inventories, outside auto inventories, rose to their highest levels since August 1995.
JP Morgan has increased tier projection for growth during the first quarter to 2.3 percent. Goldman Sachs was even more bullish, raising expectations to 2.9 percent.
Some of the increase in retail sales should be tempered as it reflects the rising gas prices. However, sales of new cars rose by 1.1 percent in February.
If Washington stays in their cocoon, the economy may continue growth. However, the two conflicting budgets presetne3d by Democrats in the Senate and Republicans in the House ae so divergent that neither party seems to understand anything about the economy or their constituents.