1. Jobs report: Growth trends in the right direction, but unemployment remains stuck. Payrolls rose by 157,000 in January and the unemployment rate ticked up to 7.9 percent, from 7.8 percent in previous months. It was a slight miss: Economists expected payrolls to grow by 160,000 in January and the unemployment rate to remain at 7.8 percent for the third straight month, according to a survey conducted by Reuters.
Although the January numbers were lackluster, the payroll numbers for the previous two months were revised upward significantly. Growth in November was revised up from 161,000 to 247,000. And jobs growth in December was revised to 196,000 from 155,000. That's good news. The labor market was doing better than we thought as 2012 came to a close.
(Source: Bureau of Labor Statistics data)
Unemployment, however—that headline number that gets so much attention—has been stuck between 7.8 percent and 7.9 percent since September. So long as it remains high, it will provide fodder to critics of the administration.
“Bad news for Americans if Obama's supposed economic recovery includes 7.9 percent unemployment. Time to stop rhetoric & focus on jobs,” Reince Priebus, chairman of the Republican National Committee, wrote in a Tweet.
2. Gross domestic product: Bad news, and more fuel for the coming spending debate. Wednesday's GDP reading was the most surprising and disappointing news of the week: The economy at the end of last year actually contracted for the first time since 2009.
Take this news with a giant grain of salt: It's preliminary and subject to revision, and other indicators—we'll get to those shortly—paint a rosier picture of the economy over the past months. Still, as long as it's a headline, it makes President Obama's life harder.
(Percent change from previous period. Source: Commerce Department data).
There were a few likely culprits behind the contraction, including late-October superstorm Sandy and businesses slowing down the pace with which they were building inventories. The one that got the most attention is the collapse in fourth-quarter defense spending, which plunged 22.2 percent.
(Percent change from previous period. Source: Commerce Department data)
Economists disagree over why defense spending fell. Some blamed fear of the coming across-the-board spending cuts known as the sequester, which were originally set to kick in at year's end but were postponed to March 1. “The Defense Department likely pushed spending ahead in the third quarter in response to concerns about potential budget cuts, taking a big chunk out of growth in the fourth quarter,” PNC Bank economists wrote in a recent research note.
Not necessarily, say economists at Nomura Global Economics.
“The drop in defense spending may not be primarily driven by the looming sequester,” they wrote Wednesday. “It is likely the drop reflects the ratcheting down of defense spending that began some time ago.”
3. Consumer confidence: Bad news, and a reminder of how Washington's actions affect confidence. There was more bad news in the January decline in consumer confidence, announced on Tuesday. And it could fall further, as consumers feel the effect of the expiration of the 2-percentage-point payroll tax cut on their wallets.
“The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock,” said Lynn Franco, director of economic indicators at the Conference Board.
(Source: Data from The Conference Board)
4. Housing, durable goods: The good news. On the bright side, housing continues to rebound. And manufacturers' orders for durable goods — things that are supposed to last for three years or more — were solid in December, pointing to continued improvement in the manufacturing sector.
(Percent change from previous period. Source: Commerce Department data, via the St. Louis Federal Reserve)
Niraj Chokshi contributed
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