US Economy Finishes 2013 with Fanfare

Has the U.S. economy taken an upward turn for good? After the spectacular upward revision to growth during the third trimester — to an annual rate of 4.1 percent this week — new indicators have caused speculators to wonder. According to the Commerce Department, orders on durable goods leapt by 3.5 percent in November after having decreased by 0.7 percent in October. Analysts were expecting an average growth of no more than 2 percent for November.

“It is an encouraging sign that reflects the dissipation of worries in relation to a new budgetary crisis and the increasing willingness of companies to spend money,” surmises Mei Li in FTN Financial. In fact, American companies seem to be emerging from their wait-and-see game now that Democrats and Republicans in Congress have decided to bury the hatchet. The partial government shutdown for 16 days in October had called into question the ability of Congress to ensure its legislative function.

Another important indicator, new home sales, shrank slightly by 2.1 percent in November, but this drop came after a spectacular increase of 17.6 percent in October and did not worry real estate market experts significantly. Prices remained oriented upward. The evolution of the real estate market is important to the household wealth effect. When their real estate values go up, households are more inclined to consume.

Household Confidence Keeps Improving

Moreover, household consumption increased by 0.5 percent in November, the strongest growth in five months. It is the seventh consecutive month of increases. Besides this, Department of Commerce statisticians have revised October’s growth from 0.3 percent to 0.4 percent. This means that household confidence continues to improve and is at its highest level in December since July. Household revenues increased by 0.2 percent in November, after sliding by 0.1 percent in October.

Another indicator illustrating the renewed confidence of Americans is the reduced rate of savings, which dropped to 4.2 percent in November, the lowest rate in nine months. 2013 marks the best year for automobile sales since 2007. Carried by these indicators, the key indexes of Wall Street, Nasdaq and Dow Jones broke their respective records this week. This adds to the wealth effect, as households with stock portfolios will feel more at ease.

A Virtuous Circle

It remains to be seen whether the virtuous circle of confidence, consumption and business investments will take hold for good. During the third trimester, the totality of company stocks constituted 1.7 percent of the growth. With the end of 2013, all eyes will be on Janet Yellen, who will replace Ben Bernanke as the head of the Fed come the end of January. She must continue the reduction in quantitative easing begun on Dec. 18. The Fed will be pumping no more than $75 billion into the economy each month, as opposed to the $85 billion until then. An important aid to the real estate sector will be disappearing bit by bit.