Trade Show Executive

TRENDING & SPENDING
SPONSORED BY
4th Quarter Decline
in GDP is Not a Harbinger
of Bad Times for 2013
BY DARLENE GUDEA, president
Oceanside, CA – Many of us have accepted
the likelihood of slow growth for 2013,
but were caught off guard when the
Commerce Department announced
that Fourth Quarter GDP went negative,
falling (0.1)%. It was the first quarterly
decline since the end of the Great
Recession and a sharp “about face”
from the 3.1% growth rate in the Third
Quarter. Economists expected growth of
about 1%. “The surprise contraction may
raise fears about the economy’s ability to
handle tax increases that took effect in
January and the looming sequestration,”
said Frank Chow, chief economist for
Trade Show Executive Media Group.
Already, a key measure of consumer
confidence by The Conference Board
plummeted in January after Americans
noticed the reduction in their paychecks.
Naturally, executives are wondering
if this is the start of another recession.
Chow believes the negative Fourth
Quarter GDP number will be revised
upward, noting, “The encouraging
economic data and reports for December,
as outlined in last month’s column,
have not been fully captured in the
GDP calculation.” He said export data
takes longer to gather than most other
economic information and there is
evidence of a backlog of petroleum
products shipments overseas at the end
of the year. Also, a slew of corporations
accelerated dividends into 2012 to avoid
a tax increase that kicked in on January 1,
2013. Dividend payments soared 50% in
December to propel the biggest increase
in personal income in five years. “I don’t
believe the impact on spending has been
recorded yet,” Chow said. Some analysts
say the dividend increase will cannibalize
future distributions in 2013, but Chow
believes that is not certain because many
companies have huge cash balances and
shareholders are clamoring for a return
of that cash in some form like dividends.
Q4 Weakness is
Not Likely to Stick Around
Furthermore, most economists think
a large segment of the Fourth Quarter
weakness will not carry over into 2013,
Chow noted. The two main factors
causing the GDP decline were, (1)
Defense spending dropped by the most
in 40 years, and (2) Companies scaled
back in restocking inventory. “Both
situations are likely one-time events,”
he said. “The defense cuts and inventory
slowdown were cautionary reactions
to the rancorous fiscal cliff debate. The
eventual fiscal cliff agreement signaled
to businesses that future fiscal deals
will be greatly scaled back, thus likely
encouraging spending and investment
to return to normal soon,” Chow believes.
So far in 2013, the economic data
continues to support slow growth:
• The Empire State Manufacturing Index
moved into positive territory for the first
time since last July. The index rose to 10.0
in February from a negative (7.8) in the
prior month. Economists expected to
fall into the red to (2.0).
• The January ISM Manufacturing Index
increased to 53.1% from December's reading
of 50.2%, indicating expansion for
the second consecutive month. All five
of its component indexes were above
50% — new orders, production, employment,
supplier deliveries and inventories.
• The January ISM Non-Manufacturing
Index was at 55.2%, down from 55.7% in
December, but still indicating expansion.
But the employment index rose to 57.5%,
up from 55.3% in December.
• Nonfarm payrolls expanded by 157,000
in January, below forecasts of 185,000.
The unemployment rate ticked up to 7.9%
Darlene Gudea,
PRESIDENT
Frank Chow,
CHIEF ECONOMIST
as more people entered the labor force.
A broader measure that includes underemployment
was steady at 14.4%.
• Retail sales barely rose 0.1% in January
after a 0.5% rise in December as tax
increases and higher gasoline prices
restrained spending. So-called core sales,
which strip out automobiles, gasoline and
building materials, also ticked up 0.1%.
Looking forward to
the rest of 2013, there
are two powerful trends
gaining momentum in the
U.S. One is the housing
revival. The other trend is
in energy. Last November,
the International Energy
Agency predicted the U.S.
will become the world's
top oil producer probably
by 2020.
Frank Chow, CHIEF ECONOMIST
FOR TSE MEDIA GROUP
• Industrial production slipped (0.1)%
in January on declines in manufacturing
and mining output, but only after
the Federal Reserve significantly revised
production for November and December.
Housing Revival
Looking forward to the rest of 2013,
there are two powerful trends gaining
www.TradeShowExecutive.com | March 2013 17