Political Bickering Sends Stocks Lower
Stocks are lower today after government estimates of GDP growth came in lower than expected for the final three months of the 2012. With roughly an hour left in the trading session, the Dow Jones Industrial Average is down by 26 points, or 0.19%.
GDP unexpectedly shrinks in fourth quarter
If you had any doubts about the damage politicians in Washington can do to the economy, then the fourth-quarter GDP figures released by the Department of Commerce this morning should clear those up. For the three months ended Dec. 31, the U.S. economy unexpectedly contracted at an annualized rate of 0.1% as federal lawmakers exploited the so-called "fiscal cliff" for political gain.
As The Wall Street Journal characterized it, the domestic economy "screeched to a halt" at the end of last year after growing by 3.1% in the third quarter. While prior forecasts had ranged from 0.3% to 2.1% for the final months of 2012, the consensus forecast settled around 1% among economists interviewed by both Bloomberg News and the Journal. Suffice it to say that few, if any, foresaw a contraction.
Digging a bit deeper into the numbers reveals a number of notable nuances. In the first case, the lion's share of the decline came from reductions in government spending, particularly defense spending. After expanding at a rate of 12.9% in the third quarter, defense spending fell a staggering 22.2% on an annualized basis as the military braced itself for the automatic spending cuts that had been set to take effect at the beginning of January but were pushed back to the end of March. Once all other sources are included, federal government spending dropped in aggregate by 15%.
Alternatively, the building momentum in the housing sector provided a bigger-than-usual boost, with seasonally adjusted residential fixed investment up by 15.3%. Further, consumer spending, which accounts for 70% of the economy, grew at an annualized rate of 2.2% from October through December, compared with a 1.6% in the preceding three-month time period.
The big question now is: What does this mean for 2013? Needless to say, the contraction in output -- the first since the financial crisis receded -- is not a good omen and potentially takes some of the steam out of the still-fragile recovery.
This was on display yesterday when a closely watched measure of consumer confidence dropped precipitously. The measure, reported by the Conference Board in an index, fell from 66.7 in December to 58.6 this month, effectively erasing all of 2012's gains. To point out the obvious, an analyst quoted by the Journal noted, "The economy has less momentum going into 2013 than initially thought, making it vulnerable to external shocks."
In terms of individual stocks, shares of Boeing are the best-performing component on the Dow today. Despite mounting problems with its newest aircraft, the 787 Dreamliner, which remains grounded by regulators around the world, the aerospace company reported (link opens PDF) fourth-quarter revenue that was in line with the consensus forecast and earnings which came in unexpectedly higher. According to the company's chairman and chief executive officer Jim McNerney:
Our first order of business for 2013 is to resolve the battery issue on the 787 and return the airplanes safely to service with our customers. At the same time, we remain focused on our ongoing priorities of profitable ramp up in commercial airplane production, successful execution of our development programs, and continued growth in core, adjacent and international defense and space markets.
Alternatively, shares of smartphone pioneer Research In Motion are sharply lower today following the unveiling of the company's newest smartphone. Known as the Z10, the phone departs from RIM's signature keyboard-sporting designs in an attempt to compete with Apple's iPhone. At present, RIM's shares are down more than 8%, giving back some of the impressive gains that they have recorded since the beginning of the year.
Speaking of Apple, while there remain many questions about whether RIM can even survive, the latest BlackBerry is likely an unwelcome surprise for the Cupertino-based technology giant, which has been gradually losing market share to rivals ever since it first introduced the iPhone. On the heels of this trend, shares of Apple have fallen by more than 30% since peaking in September of last year. And as my colleague Eric Bleeker recently pointed out, Apple has now even ceded its position as the largest company by market cap back to ExxonMobil.
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