Uncle Sam’s Q4 2013 headline Gross Domestic Product (GDP) figure just met market expectations at 3.2% but U.S. stocks rose and the US Dollar Index also got some lovin’ from traders. Why the heck was it such a hit? Here are five reasons:
1. A 3.2% growth is already record-breaking
A 3.2% growth in Q4 2013 might have followed a 4.1% gain in Q3 2013 but it’s also nothing to sneeze at. In fact, the numbers add up to a 3.7% growth in the second half of the year, sharply higher than the first half’s 1.8% growth. The last time the economy expanded by at least 3% in six months was two years before the last recession.
2. Uncle Sam shrugged off a government shutdown
What makes investor optimistic is that the 3.7% growth already takes into account the 16-day government shutdown. The Commerce Department believes that the reduction in hours of federal employees shaved off about 0.3% from Q4’s GDP.
3. The trade numbers aren’t too bad
Remember your GDP=C+I+G+(E-I)? Well, thanks to declining oil imports and firmer global growth, exports rose at its fastest pace in three years and the “(E-I)” part contributed about 1.33% to the GDP report. Not bad, huh?
4. The government spent less while consumers and businesses spent more
The government shutdown and a large drop in defense purchases contributed to a 4.9% reduction in government spending, its largest contraction since 2012. Fortunately, consumers and businesses picked up the slack.
Improvements in the labor and stock market as well as housing prices helped consumers shrug off a payroll-tax increase, which led to a 3.3% rise (fastest in three years!) in personal consumption expenditures. This is good news since the component makes up two-thirds of the GDP. Business expenditures also picked up as spending on equipment rose by a whopping 6.9% after only rising by 0.2% in Q3 2013.
5. The Fed gets to say “I told you so!”
As I mentioned yesterday, the Fed was more confident about economic recovery, so much so that it had reduced its monthly asset purchases by another $10 billion. You win, Fed. You win this time.
Of course, Uncle Sam’s recovery isn’t without its challenges. Investors are worried that a sharp rise in inventory could lead to excess stockpiles in Q1 2014. Emerging markets could also be a threat, as unstable currencies could negatively impact trade. For now though, it looks like market players are pretty happy with the economy’s pace in the recovery track.