Looking at the economy, we see good news and bad. Let’s start with the good news. 3Q GDP rose a surprising 3.1% (annual rate). Inventory rebuilding was cited as the main reason for the stronger than expected showing. This was the third and final estimate of 3Q GDP.
Most forecasters still expect slower growth in the 4Q, with most estimates in the 1-2% range. We won’t get our first official look at 4Q GDP until late January when the Commerce Department puts out its “advance” estimate.
The other good news of late is in the housing market. Home prices are on track to notch their first yearly gain since 2006, the strongest performance since the housing bust, and a development that could accelerate the real-estate rebound. Since January, prices are up 6.9% so far this year, the largest year-to-date gain since 2005.
The median sales price of existing homes climbed to $180,600 in November from $176,900 in October. This is good news, but as you can see in the chart below we are still down from this year’s peak of $188,800 in June.
And now the bad news. US holiday retail sales this year grew at the weakest pace since 2008, when the nation was in a deep recession. In 2012, the shopping season was disrupted by bad weather and consumers’ rising uncertainty about the economy.
MasterCard’s SpendingPulse, reported that sales in the two months before Christmas increased only 0.7 percent, compared with last year. Many analysts had expected holiday sales to grow by 3-4%.
Last year, by contrast, retail sales in November and December rose between 4% and 5% according to ShopperTrak, another well-known market research firm. A 4% increase in holiday spending is considered a healthy season.
Shoppers were buffeted this year by a string of events that made them less likely to spend: Superstorm Sandy and other bad weather, the distraction of the presidential election and grief about the massacre of schoolchildren in Newtown, CT were just a few of the distractions.
The numbers also show how Washington’s current budget impasse – the “fiscal cliff” – is trickling down to Main Street and unsettling consumers. If Americans remain reluctant to spend, analysts say, economic growth could falter next year, especially if we go over the fiscal cliff.
Speaking of the fiscal cliff, lawmakers are returning to Washington to try and reach a last-minute budget deal. President Obama cut short his vacation in Hawaii and returned to Washington this morning. I remain pessimistic that a deal will be reached, but you never know.
Since I have written in detail in recent weeks about the consequences of going over the fiscal cliff, I won’t repeat that discussion today. But there is general agreement that if a deal isn’t reached in the next five days, the economy will sink into recession in the first half of the new year.
Meanwhile, Treasury Secretary Tim Geithner announced yesterday that the US will hit the debt ceiling on December 31. According to Geithner, the US will exceed the $16.4 trillion debt limit on Monday. In an open letter to Congress, Geithner noted that the Treasury could employ certain “extraordinary measures” to finance the government for a couple of extra months in 2013. We’ve seen this movie before.
You may recall that President Obama wants to eliminate the debt ceiling altogether as a part of his proposed budget deal that would raise taxes on families earning over $250,000 a year (although he has hinted that he might be willing to raise that number to $400,000).
The next few days will likely be a crazy time in the financial markets. The Dow is down 120 points as this is written. Anything can happen as things play out in Washington.
I hope everyone had a Merry Christmas; we certainly did at our house!
And I wish you all a very Happy New Year!! 2013 will be very interesting.
Have a great weekend everyone!