Quarterly Economic Perspective

• The Bureau of Labor Statistics said the unemployment rate fell to 7.7%; the 246,000 new jobs added by the private sector were partly offset by the loss of 10,000 government jobs. Meanwhile, economic growth during the final quarter of 2012 slowed substantially. According to the Bureau of Economic Analysis, the 3.1% growth seen in the third quarter shrank to 0.4% in Q4, while corporate after-tax profits rose 3.3% during the quarter (though they were down 1.1% year-over-year).
• The $85 billion of across-the-board federal budget cuts known as the sequester began going into effect, raising questions about how they might affect economic growth later in the year. However, Congress averted a second potential stalemate, agreeing to a continuing resolution to fund the federal government through September.
• Long-term trends in the housing market continued to improve. Home prices in 20 cities measured by the S&P/Case-Shiller index were more than 8% higher than a year earlier. The Commerce Department said new single-family home sales were up more than 12% from a year ago, while housing starts were almost 28% ahead of the same time last year. And the National Association of Realtors® said home resales are more than 10% ahead of a year ago, and have reached their highest level since November 2009, when there was a homebuyer’s tax credit.
• The Federal Open Market Committee will continue its bond purchases until the unemployment rate falls to 6.5%. However, it has begun to explore options for winding down quantitative easing, and may vary the size of its purchases if economic recovery picks up.
• A surge in orders for commercial aircraft helped boost U.S. durable manufactured goods orders during the quarter, according to the Commerce Department. Retail sales saw their biggest monthly increase since September during February, though the Commerce Department said increased spending at gas stations accounted for part of the higher figures. The spike in gas prices also helped push up consumer inflation over the last 12 months to 2%, while the Bureau of Labor Statistics said wholesale prices rose 1.7% during the same time.
• It was tiny Cyprus’s turn to be the focus of concerns about eurozone financial stability. After first rejecting the terms of a €10 billion bailout agreement with the international lenders known as the troika, Cyprus’s parliament agreed to tax bank deposits over €100,000. It also imposed tight limits on bank withdrawals and other transactions to try to prevent capital from leaving the country, which would make debt repayment even more difficult.
• European economies contracted during the final quarter of 2012, according to the Organization for Economic Development, while Chinese growth remained relatively stable, though slower than the year before.

Eye on the Month Ahead

Key dates and data releases: U.S. manufacturing, construction spending, auto sales (4/1); factory orders (4/2); U.S. services sector (4/3); unemployment/payrolls, balance of trade (4/5); Federal Open Market Committee announcement (4/10); wholesale inflation, retail sales (4/12); international capital flows, homebuilders’ survey, Empire State manufacturing survey (4/15); consumer inflation, housing starts, industrial production (4/16); Fed “beige book” report (4/17); Philadelphia Fed manufacturing survey (4/18); options expiration (4/19); home resales (4/22); new home sales (4/23); durable goods orders (4/24); initial estimate of Q1 economic growth (4/26); personal income/outlays (4/29); home prices (4/30).