Growth Stumbles, Markets YawnJanuary 30, 2013 Posted by: Joe Morgan
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
There are so many contradictions
In all these messages we send
We keep asking "How do I get out of here?"…
And someday you will
Learn to be still
How could GDP growth be -0.1 percent when the Bloomberg median estimate was 1.1 percent with a low of positive 0.3 percent? Further, how could growth stumble so much and markets remain so unconcerned?
The true but dissatisfying answer is "forecasting is hard."
In the lead up to the Fiscal Cliff, we saw business and government expenses cut which drove activity downward. Some of these factors may repeat in the course of 2013, but some will not be sustained.
Businesses cut back on inventories after growing them to outsized proportions in the third quarter. Volatile inventory figures have become typical as we moved closer to just-in-time structures.
Defense spending last quarter dropped 22.2 percent as the department prepared for automatic spending cuts that were eventually delayed to March.
On the flip side, consumption accelerated to 2.2 percent from 1.6 percent even though uncertainty around tax rates combined with the effects of Sandy should have driven growth downward. It's likely we are seeing the effects of recent stability in the housing sector which allowed shoppers to spend more.
Looking ahead, massive government spending cuts remain on the agenda as the sequester is set to begin in March, but more Washington wrangling could create another delay. And further inventory drawdown is unlikely, particularly if consumption can retain some momentum.
As I wrote last week, the oasis we face is real, but the question that remains is how long it can last.Read More