Wednesday saw the first look Q4 GDP and at first glance it looked downright ugly. The estimate was for a gain of 1.1% but instead we saw a contraction of .1%. This for best quarter of the year, and a not-so-hot comparison with 2011. What gives? Much was blamed on the weather and Super Storm Sandy, which was a major disruption on the busy east coast. That 'one off' event will likely be reversed at the end of this year (barring any more disasters).
Some of the reasons for a weak GDP were contributed to government contraction, more specifically the defense area. But a 15% contraction in government spending was huge, the biggest in 40 years and offset some very nice gains in the private sector. That's the good news. But back to that government spending. Isn't that what everyone is complaining about? Too much spending and nobody is happy, cut back on the spending and nobody is pleased. Less involvement by the government in the economy and more by the private sector is what we need to turn things around. For me, the economy is heading down the right path in 2013 and will mostly surprise on the upside - as long as demand is there and business conditions are favorable.
The Fed came out with their first statement of the year and basically told us what we already knew - the economy is weak and still needs more 'hand-holding', The jobs area is improving but needs to see more progress. There was nothing surprising in their statement and I suspect there was more talk about the Super Bowl this coming weekend than the economy. We are unlikely to see a major shift in policy for quite some time - perhaps a year or more. But just the same, pay close attention to the language and wording by the Fed - those will be important clues.