Immigration and gun control have dominated the issue agenda for the past few weeks, pushing away, for a time, the previously dominant worries about fiscal issues and their impact on the overall health of the U.S. economy. But Wednesday morning’s news that the economy, as measured by real gross domestic product, had declined in the fourth quarter of 2012 by one-tenth of a percentage point—surprising economists who had expected the economy to grow by 1 percent—brings these issues back to the forefront. In the third quarter of 2012, real GDP grew by 3.1 percent.
The release of numbers showing the economy contracting slightly in the last quarter hardly constitutes a hair-on-fire event, and they could be revised upward next month when the second estimate is released. But Wednesday’s report follows two surveys indicating that consumers have unexpectedly turned pessimistic. On Tuesday, the Conference Board released its preliminary consumer-confidence numbers for January. It pegged confidence at 58.6, far below the consensus estimate by Briefing.com of 65.1. The confidence level in December was 66.7; the recovery’s peak level of 73.1 came in October.
The Conference Board numbers follow on the heels of preliminary January numbers by the Reuters/University of Michigan Index of Consumer Sentiment showing a decline in consumer optimism to far below what economists had forecast. The Reuters/Michigan number for the first half of January was 71.3, down from 72.9 in December and well off the consensus of 75 reported by Briefing.com. The Conference Board and the Reuters/University of Michigan numbers are the most closely watched indicators of consumer sentiment, with the latter considered the less volatile of the two. When both head in the same direction, it’s worth noting.