Economic Statistics

Economic data released on Wednesday of last week showed an unexpected annualized decline in GDP of 0.1%. While initially causing concern about an economic slowdown, the low number was explained by two factors, a large reduction in business inventories related to Hurricane Sandy and the largest quarterly decline in government defense spending since the 1970s. The combined impact of these two factors knocked 1.3 percentage points off total growth for the quarter. Two days later, US non-farm payroll data showed a relatively strong rise of 157,000 jobs in January, and upward revisions to 2012 job numbers created enthusiasm.  While these contradictory data points seemingly signal an economy that is contracting and plodding along, an explanation for the confusion is fairly simple. Gross domestic product data were distorted by two one-off factors, payroll data was in line with expectations, and the U.S. economy continues to grow, as noticeable improvements in the housing market and an uptick in ISM manufacturing continue to drive the economy.