Analysts see a rebound ahead, not more recession

  • Article by: RICH MILLER , Bloomberg News
  • Updated: January 31, 2013 - 10:07 PM
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In this Thursday, Dec. 6, 2012, photo a new home is constructed in Pepper Pike, Ohio. Some cite a "mounting" housing recovery as reason to expect the economy to rebound further.

Photo: Tony Dejak, Associated Press - Ap

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WASHINGTON - The "R" word that economists were using after Wednesday's news that U.S. gross domestic product contracted in the fourth quarter was rebound, not recession.

The economy will bounce back in the current quarter after plunging defense spending and dwindling inventory growth swamped gains for consumers and businesses in the final three months of 2012, according to economists at JPMorgan Chase & Co., Bank of America and Morgan Stanley. Businesses probably will rebuild stockpiles while consumers and companies keep on spending.

"It would be a mistake to view this drop in GDP -- driven by temporary corrections in defense spending and inventories -- as a possible harbinger of recession," Nigel Gault, chief U.S. economist for IHS Global Insight in Lexington, Mass., said in an e-mail. "We expect GDP growth to rebound to around 2 percent in the first quarter."

The expansion will stay on course, thanks to a "mounting" housing recovery, a steadily improving job market and reviving demand for U.S. exports, said Mark Zandi, chief economist in West Chester, Pa., for Moody's Analytics. He sees GDP expanding 2.1 percent in 2013, after rising 2.2 percent last year.

The 0.1 percent decline in output in the final three months of the year was the economy's worst performance since the second quarter of 2009, when the U.S. was still mired in a recession, according to figures from the Commerce Department in Washington. It followed a 3.1 percent annualized pace in the third quarter.

After stripping out the inventory and defense data, the "tone of the report was positive," said Peter Newland, an economist in New York for Barclays Plc. Consumer spending growth picked up to 2.2 percent from 1.6 percent in the third quarter, while business investment accelerated.

The steep drop in military outlays and restrained inventory building last quarter partly was a payback for the previous three months, when they both added to GDP. The slowdown in stockpiling also stemmed from supply-chain disruptions from superstorm Sandy.

Taking the two quarters together puts the "underlying" growth rate at about 1.5 percent, economists David Greenlaw and Ted Wieseman at Morgan Stanley in New York said in a note. That's the pace they forecast for the first three months of 2013.

"Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors," the Federal Reserve said Wednesday at the conclusion of a two-day meeting in Washington. "Household spending and business fixed investment advanced, and the housing sector has shown further improvement."

The central bank said it will keep buying securities at the rate of $85 billion a month "to support a stronger economic recovery."

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