US economy barely grew in Q4, but rebound likely

Published on NewsOK Modified: February 28, 2013 at 1:33 pm •  Published: February 28, 2013
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Paul Ashworth, chief U.S. economist at Capital Economics, predicts growth could be as high as 2 percent in the current quarter. Alan Levenson, chief economist for T. Rowe Price, said growth could be as high as 2.5 percent.

Ashworth noted that a sharp decline in defense spending and slower business restocking subtracted 2.9 percentage points from growth in the fourth quarter. At the same time, consumer spending and business investment — two key drivers of growth — accelerated at the end of last year.

"We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests," said Ashworth.

More jobs and ultra-low mortgage rates are helping the once-battered housing market recover. New-home sales jumped 16 percent to their highest level in 4½ years in January.

At the same time, the number of new homes available for sale remains near record lows. That means builders will likely have to start construction on more homes and apartments to keep up with demand. That should create more construction jobs.

Home prices also rose in December compared with the same month a year ago by the most in more than six years. Rising home values contribute to the housing recovery and the broader economy. They encourage more people to buy before prices rise further. Higher prices also build homeowners' wealth, which can spur more spending and economic growth.

Businesses and consumers are also showing greater confidence despite automatic spending cuts scheduled to take effect on Friday. A measure of consumer confidence rebounded in February after a sharp fall the previous month that likely was a result of the tax increase.

Companies, meanwhile, sharply increased orders in January for a category of long-lasting manufactured goods that reflect their investment plans. That suggests they are confident about their business prospects.