The U.S. economy competed a hectic week, showed that the economy still suffering in its recovery journey, where the Gross Domestic Product unexpectedly contracted and jobs report came out worse than estimates, at the time where FOMC decide to continue its accommodative policies to support the economy.
The Gross Domestic Product shrank by 0.1 percent in fourth quarter 2012 after it grew 3.1 percent in third quarter, and lower than forecasts of 1.1 percent expansion.
This surprisingly contraction in the economy was due to the cuts in defense spending which was the highest cut in four decades particularly from 1972, in addition to the so called “fiscal cliff” which fueled the markets with concerns and uncertainty in last three months, which affect business activities in United States.
Moreover, Hurricane Sandy played a significant role in this contraction when it hit the east coast at the end of October and in first few days of November, and that what the Federal Open Market Committee confirmed during their last two days meeting, where they said that economic activity retreated notably in the past few months, partly due to bad weather.
The Federal Open Market Committee decided on Wednesday to keep its key interest rate low between 0.00 and 0.25 percent and continue the bond purchase program to support the labor sector and the economy in its recovery journey.
As for the labor sector, the Fed said unemployment remains high, and that consumption levels are constantly improving, while asserting that inflation levels are still under control.
Furthermore, the private sector added 192 thousand jobs on Wednesday, up from 185 in December, topping estimates of 165 thousand jobs, according to ADP Research Institute.
This report was supposed to gave analysts’ a hint about the U.S. jobs report, and that the labor sector is in the right way of recovery, but the jobs report “Non-farm payroll” came out disappointedly; where the economy added only 157 thousand jobs in January, down from 196 thousand in December, which indicate that labor sector needs more stimulus and longer time to recover after the “ financial crisis” .
Likewise, Unemployment rate in the U.S. unexpectedly rose to 7.9 percent, from 7.8 percent in previous month.
On the other hand, positive data was observed in income report, where U.S. personal income inclined 2.6 percent the fastest pace in eight years; from 0.6 in November which was revised to 1.0 percent, beating estimates of 0.8 percent.
While, Personal spending also rose 0.2 percent, compared with November rise of 0.4 percent; lower than forecasts of 0.3 percent.
This improvement and increasing in income and spending were due to the holiday season, where firms hire more employees to meet consumers demand.
Not to forget, Congress on Friday gave approval to the House’s plan to suspend the debt ceiling on the U.S. debt, which would allow the Treasury to increase its borrowing, thus removing the threat of default on the U.S. government until August.
Noting that, the House of Representatives passed the bill last week, Republican leader stated they will not try to take advantage of this occasion as leverage in their battle with the President over the Federal budget.
The U.S. economy still suffering to reach the recovery after the financial crisis, due to domestic and global obstacles, and that need more stimulus measures from the Federal Reserve to support the economy and labor sector.