In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy breaks down the latest economic releases. Although GDP contracted in the fourth quarter for the first time since the second quarter of 2009, the private sector added 675,000 jobs – the second-strongest rate since the recovery began.
Two days after a Commerce Department release that showed real gross domestic product (GDP) contracted for the first time in more than three years, the latest jobs report boosted economic spirits with stronger than expected private sector hiring in the fourth quarter of 2012. Despite the mixed signals, the underlying fundamentals of the economy remain positive, which points toward an improving business environment in 2013.
On the down side in the fourth quarter, GDP – the value of goods and services produced in the United States – declined at a 0.1 percent annualized rate, the first contraction since the second quarter of 2009. The contraction was due in large part to a sharp decline in federal defense spending, which plunged at a 22 percent annualized rate in the fourth quarter. In addition, a drop in U.S. exports and a downturn in private inventory accumulation were also substantial drags on overall output in the fourth quarter.
On the plus side, consumer spending picked up in the fourth quarter. Total personal consumption expenditures increased at a 2.2 percent annualized rate in the fourth quarter, the strongest gain in three quarters. The improving trajectory in consumer spending is more important than the fourth quarter weakness in defense spending, exports and inventories, which are more isolated events that will likely not impact the positive expected growth during 2013.
Bucking the weakness in GDP, private sector hiring was substantially stronger in the fourth quarter. According to preliminary figures from the Bureau of Labor Statistics, the private sector added a net 675,000 jobs in the fourth quarter, which included broad-based gains in excess of 200,000 jobs each month during the quarter.
The fourth quarter gain was a solid improvement over the growth during the second (+350,000) and third (+426,000) quarters, and represented the second-strongest private sector employment gain since the recovery began. The largest post-recession gain was registered in the first quarter of 2012, when the private sector added a net 796,000 jobs.
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