Thursday, 31 January 2013

Fed maintains monetary policy as US economy shrinks

The US economy unexpectedly shrank in the fourth quarter, contracting at a 0.1 percent annual rate, according to a report on Wednesday. The contraction was mostly attributed to a decline in government outlays and a smaller gain in inventory.

In contrast, consumer spending grew at a 2.2 percent annual rate, up from 1.6 percent in the previous quarter. Residential construction grew at a 15.3 percent rate.

Adding to signs of underlying growth in the US economy, data from ADP on Wednesday showed that companies took on 192,000 employees in January, up from 185,000 in December.

Indeed, the Federal Reserve left monetary policy unchanged on Wednesday, noting in its statement following its latest monetary policy meeting: “Growth in economic activity paused in recent months in large part because of weather-related disruptions and other transitory factors.”

Meanwhile, economic data from Europe on Wednesday were mixed.

Spain’s recession deepened in the fourth quarter as gross domestic product fell 0.7 percent, worse than the previous quarter's 0.3 percent decline.

However, economic confidence in the euro area improved in January, with the European Commission's economic sentiment indicator rising to 89.2 from 87.8 in December.

There were also positive economic data from the UK. Home loan approvals rose to 55,785 in December, the highest since January 2012, from 54,011 in November. Net mortgage lending increased by 1.036 billion pounds in December, the largest amount since April.

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