This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Winter Chill Settles Over The Economy

Late last month, the official estimate of economic growth for the fourth quarter was revised upward. Does this signal a strong finish for 2012 -- or simply set the economy up for yet another disappointment?

Unfortunately, new figures on retail sales suggest the latter might be the case. If so, it would mark the third time since the Great Recession that the U.S. economy has revved its engines, only to do little more than spin its wheels.

Economic data remains mixed

On December 20, the U.S. Bureau of Economic Analysis announced that real Gross Domestic Product (GDP) grew at a 3.1 percent rate in the third quarter of 2012. This marks a healthy increase over the previous estimate of 2.7 percent growth, and a considerable increase over the initial estimate of 2.0 percent. Since that first estimate was made in late October, this measurement of economic growth has transitioned from mediocre to very promising.

A 3.1 percent growth rate represents a significant improvement over the second quarter's growth rate of 1.3 percent, and would be easily the best quarter for economic growth so far in 2012. However, in recent years the economy has shown flashes of growth before without being able to follow through. The fourth quarters of both 2009 and 2011 had GDP growth rates in excess of 4 percent, only to see the next quarter's growth slow by about half.

In order to really put a dent in unemployment, economic growth needs to be sustained over a period of several quarters. Unfortunately, the U.S. economy hasn't been able to string together back-to-back quarters of 3 percent or better growth since 2007.

A new snapshot of retail spending suggests that the end of 2012 won't be any different. The MasterCard Advisors SpendingPulse estimate of holiday spending found that buying activity over the two months preceding Christmas was up only 0.7 percent over the prior year. This was the slowest growth rate for holiday spending since 2008, and represents a big disappointment against analyst estimates of 3-4 percent for this year.

The shadow of the cliff

Why did the economy suddenly put on the brakes in the fourth quarter? There are a few possible explanations, but a likely culprit seems to be concern over the fiscal cliff. The prospect of take-home pay suddenly dropping might not only have prompted consumers to be more conservative about holiday spending, but it also may have influenced businesses to rein in their expansion and hiring plans.

Outlook for savings accounts

Slow economic growth dampens the outlook for interest rates on savings accounts. These rates are already near zero, and are unlikely to rise unless sustained growth gives banks more incentive to attract deposits.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs