The United States economy shrank in the fourth quarter of 2012, the first overall decline since the end of the recession in 2009. The nation’s gross domestic product (GDP) decreased at an annual rate of 0.1 percent in Q4, following a 3.1 percent gain in the third quarter, according to an advance estimate from the U.S. Department of Commerce.
The contraction was primarily driven by declines in government spending, which had inflated growth for the third quarter, as well as businesses drawing down their inventories at the year’s end, and a dip in U.S. exports. However, economists noted that the slight decrease in GDP was in line with seasonal factors, and the outlook remains positive for the remainder of 2013.
“The details weren’t as discouraging as the headline…The mainstays of the domestic private economy – housing, consumer spending and business investment in equipment and software – were stronger,” the Wall Street Journal explains. “Research firm Capital Economics called the report ‘the best-looking contraction in U.S. GDP you’ll ever see.’ Forecasters didn’t see the decline as a harbinger of recession.”
Consumer spending, which makes up the largest portion of the U.S. economy, grew at a 2.2 percent annual rate in the final quarter of 2012. Computer sales added 0.15 percentage points in positive growth to fourth-quarter GDP, while motor vehicle output contributed 0.04 percentage points. Analysts forecast the U.S. economy will rebound in the first quarter of 2013, growing at a moderate rate of approximately 2 percent.
Despite the fourth-quarter drop in GDP, the U.S. economy as a whole expanded at a healthy pace last year, posting 2.2 percent growth, following a 1.8 percent increase in 2011, and 2.4 percent growth in 2010.
American Manufacturers More Optimistic
U.S. manufacturers had a sunnier outlook on domestic business conditions during Q4 2012 than earlier in the year, according to a new survey released by PricewaterhouseCoopers (PwC) last week.
The Q4 2012 Manufacturing Barometer showed that 48 percent of U.S. manufacturers were optimistic about the U.S. economy, up from 37 percent in Q3; only 7 percent of respondents were pessimistic. Furthermore, 83 percent of the manufacturing executives surveyed expected higher revenues in 2013 and predicted an average 5.2 percent growth rate for their businesses in the new year.
Additionally, 58 percent of respondents expressed intentions to hire in 2013, mostly seeking professionals/technicians (58 percent), skilled laborers (35 percent), and production workers (43 percent).
Capital investments were down slightly from the third quarter, with 47 percent of respondents planning major capital investment during 2013, while operational spending plans remained steady, with 80 percent of executives planning operational spending increases.
“Overall sentiment among U.S. industrial manufacturers regarding the prospects for the domestic economy rose in the fourth quarter along with company growth projections, which trended higher as well,” PwC Industrial Manufacturing Leader Bobby Bono said. “The improved sentiment regarding the domestic outlook contrasts with the continued high level of uncertainty concerning the international stage. This dichotomy appears to be playing out in the healthy indications for net new hiring and operational investment, which contrast with the pullback in plans for international expansion.”
Durable Goods Orders Post Strong Gains
New orders for manufactured durable goods surged in December, climbing 4.6 percent, following a 0.7 percent gain in November and marking the fourth consecutive month of growth, according to the U.S. Commerce Department. The latest gains suggest manufacturing will continue to improve through early 2013.
The overall value of durable goods orders increased by $10 billion in December to a total of $230.7 billion. Transportation equipment posted the largest increase, jumping 11.9 percent to $75.9 billion. Excluding the often volatile transportation category, new orders rose 1.3 percent for the month.
“American manufacturers from General Electric Co. to DuPont Co. are among those benefiting from a pickup in global growth that will probably keep assembly lines busy,” Bloomberg News reports. “Increasing demand for communications gear and machinery also points to gains in U.S. business spending that show company chiefs are looking beyond the federal debate on ways to trim the budget deficit.”
Meanwhile, orders for primary metals climbed 3.6 percent to $29.8 billion in December, demand for fabricated metal products rose 1.2 percent, and machinery orders increased 0.4 percent. Orders for core capital goods, which serve as a key gauge of future business investment, inched up 0.2 percent.
“Economists were encouraged that orders for so-called capital goods kept rising in December after gains of 3 percent in both November and October,” the Associated Press explains. “Still, the increases followed a weak stretch in demand for those goods that had raised concerns about companies’ confidence in the economy.”
Emerging Economies to Drive Machine Safety Market
Rapid growth of the manufacturing sector in emerging economies, as well as more stringent safety requirements in developed countries, is expected to significantly bolster demand for machine safety solutions in the near future, new research shows.
A recent report from Frost & Sullivan found that the global machine safety market earned revenues of over $1.27 billion in 2011, and this total is expected to climb to $1.75 billion in 2016, as more manufacturers around the world recognize that machine safety can provide a competitive advantage and improve a company’s public image. Machine safety systems monitor the health of plant equipment to reduce its exposure to damage, lengthen its life-cycle, and reduce the rate of work-related injuries.
“[R]egulations require employers to create a safe working environment for employees. Manufacturers, especially in developed countries where law enforcement is high, are aware that it is more cost-efficient to use machine safety devices than bear the penalty for non-compliance,” the report notes. “Improvements in safety solutions also offer business opportunities for machine safety vendors among conservative end users.”
Although the global economic downturn forced many manufacturers to reduce operating and maintenance costs, leading to spending cuts in plant functions viewed as non-critical, reduction in safety solutions generally hamper sales and curb business investment, particularly in developing countries. As a result, more companies are expected to continue or increase their spending on machine safety technology over the next three years.
Unemployment Rate Inches Up
Although the U.S. labor market added 157,000 non-farm jobs in January, the national unemployment rate rose to 7.9 percent last month, up from 7.8 percent in December, the U.S. Department of Labor reported. However, new revisions based on tax return data initially unavailable to the government indicate that hiring was stronger in 2012 and 2011 than first estimated.
Still, job growth has been modest compared with previous recoveries, and the unemployment rate has been stuck just below 8 percent since September,” the New York Times notes. “And Washington is gearing up for yet another showdown over fiscal policy, with severe spending cuts kicking in on March 1 if Congress fails to reach a budget bargain, just as Americans are starting to notice the larger tax bite in their paychecks from higher payroll and income taxes.”
The largest employment gain last month was in the retail trade industry, which added 33,000 jobs, including 7,000 positions among motor vehicles and parts dealers. Construction employment rose by 28,000 jobs, while manufacturing employment remained relatively unchanged in January.
New initial jobless claims also increased sharply in the latest week reported after hitting a five-year low last month. According to a related report from the Labor Department, unemployment claims for the week ending January 26 rose by 38,000 to a total of 368,000, the biggest increase since the week after Superstorm Sandy. Meanwhile, the four-week moving average inched up by 250 from the previous week, reaching 352,000.