The report is a shocker: according to the first release, the slow growth has ended an turned into a minor contraction: 0.1%. This figure is annualized and is subject to revisions, so the US might still have grown in Q4. Nevertheless, this is a huge shock. The market had expected a growth rate of 1.1% (annualized). In 2012, the US economy grew by 2.2%.
This is the first decline since the Great Recession: since Q2 2009. However, the drop is blamed on significant cuts in defense – not in consumption. This is encouraging. EUR/USD and USD/JPY are off their highs of the day and USD/JPY is now crashing.
More good signs: disposable income was the largest since 2Q 2008 and savings were on the rise. Another one is a drop in inventories: a buildup of inventories helped Q3 growth. A future replenishing of inventories will likely boost growth in Q1.
The US enjoyed a strong third quarter, with a growth rate of 3.1%. However, the components of this growth were problematic. In addition, economic signals during Q4 pointed to slower growth. The Sandy superstorm occurred during this quarter, and might have influenced the data.
Earlier, ADP reported a strong gain in private sector jobs: 192K instead of 164K that was expected. This isn’t always a perfect indicator for the official Non-Farm Payrolls. Last month, ADP reported a very strong growth in jobs, 215K, that was eventually higher than the NFP .This figure was revised to the downside.
After these two big releases, the focus moves to Ben Bernanke: the Fed will announce its decision at 19:15 GMT. Preview: Don’t Build on Bernanke to Stop the Dollar’s Decline
The report certainly lowers expectations for any kind of hint of tightening from the Fed.