American economy is weakening in fourth quarter 2012

American economy is weakening in fourth quarter 2012

Unexpected the U.S. economy contracted for the first time in three-and-a half years by 0.1 %, whereas the growth rate in the third quarter amounted to 3.1 %. Experts mention as a reason the so called fiscal cliff leading to 15 % less spending by the federal government and private business

The envisioned tax increases and possible federal budget cuts might negatively influence the U.S. economy during the first half of 2013 and the turnaround of the housing market will be a key to support the economy favourably.

On the other hand, private spending over the holiday season increased by 2.2 % and the figure for the third quarter was 1.6 %. Spending on home improvements advanced by 15.3 % in the fourth quarter and business investment grew steadily at 8.4 %. However exports fell 5.7 %.

The U.S. Commerce Department estimates that storm Sandy destroyed USD 35.8 billion in private assets and USD 8.6 billion in government property and it is expected that private insurance companies will have to pay out benefits in the order of USD 20.6 billion in losses and the federal government’s flood insurance programme will have to pay an addition USD 7.5 billion.

Also the drought in the Midwest took a toll on the economy by reducing farm inventory investment by USD 24 billion in the fourth quarter, but after adjustments for inflation, farm inventories are still positive – for the first time in 2012 – to the GDP General Domestic Product.

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