The economy is growing, but is it sustainable?

Growth is the strongest in years, but what happens as the Fed winds down its bond buying?

By The Week Jan 31, 2014 3:30PM

Image: Arrow Up (© Stockbyte/SuperStock)American gross domestic product, the broadest measure of economic activity, grew at a seasonally adjusted annual rate of 3.2 percent in the fourth quarter, the Commerce Department said Thursday, in line with economists' estimates.


Overall, activity expanded 3.7 percent in the second half of 2013, significantly higher than the 1.8 percent pace in the first half of the year, and the strongest second-half growth since 2003, when activity expanded 5.8 percent.


The data shows that growth came mostly from rises in consumption, which rose 2.4 percent on the third quarter, and foreign trade, which rose 1.4 percent. Growth in companies' inventories and investment were markedly lower. Government spending fell by 1 percent.


This level of growth should come as a surprise to no one. Markets have so far responded well to the Federal Reserve's quantitative easing bond buying program, with both the Dow Jones Industrial Average and S&P 500 hitting nominal all-time highs in recent months.


Unemployment is down to 6.7 percent, the lowest since the 2008 financial crisis. Even housing prices are beginning to rise again. And there has been no inflationary cost; inflation remains contained below the Fed's 2 percent inflation target.


The question is whether that growth can last now that the Federal reserve is tapering its bond-buying programs.


The central bank will purchase $65 billion each month in bonds and mortgage-backed securities, down from $85 billion in 2013, which on the surface appears to be a cautious and tentative approach. But markets around the world seem unsettled by that prospect.


The Fed forecasts the economy will grow between 2.8 percent and 3.2 percent in 2014. Whether or not growth can reach that level in the context of a winding down of quantitative easing remains to be seen.


The Fed, at least, seemed optimistic this week, when it laid out its view that a taper was justified due to "growing underlying strength in the broader economy."


Critics of monetary stimulus assert that the Fed's stimulus programs may juice the economy while they last, but tend to lead to a downturn once the program is completed. Of course, this does not have to be the case, but it is quite possible that the market will get itself into a panic.

This means that the Fed should be prepared to continue stimulus if the recovery does not yet prove to be self-sustaining.

 

More from The Week

32Comments
Jan 31, 2014 3:48PM
avatar

2% gdp growth for all of 2013 is "the strongest growth in years" according to the headline.  author is totally mental!

 

since when is 2% strong growth?

 

no matter how much you liberal writers try to con america and spin the truth, we arent buying your bullsh!t!

Jan 31, 2014 4:42PM
avatar
I have to laugh...  Obama asks CEO's to hire people...  I hope they pay him the same kind of lip service Obama gave them!   The need to tell Obama to repeal Obamacare first.  Then cut government spending, and then CUT TAXES on working people.   

Until he is willing to do that, I'd say, come back when you are serious...
Jan 31, 2014 4:21PM
avatar
Not as long as liberal idiots are running the show. Repubs are not that much better. Time for a Libertarian.
Jan 31, 2014 5:05PM
avatar

GDP is a chimera. the GNP (Gross National Product) is more accurate and indicative. Forget "Wall Street", It's what are we producing, not what are we consuming (I consume only food. Anything else would poison me.).

 

With a Labor Force Participation rate of barely 63%, we only have, really, about 30% of the total U.S. population  supporting the other 70%.

Feb 3, 2014 12:32AM
avatar
The Game was just sad;;;;;; Sad for anyone that likes a good football game...
Feb 2, 2014 12:54PM
avatar

Go Broncos....

By 3....

If Peyton can pick apart the Seahawk Defense, and the OFL can control them...

It could be a bigger spread...?

The numbers I have suck, think there almost has to be a safety..?

And I look for Denver to be more than a "mile high" tonight...

Feb 2, 2014 1:57AM
avatar

Can Payton Manning beat the Seattle Seahawks?  DEN 31, SEA 28

 

Take the Seahawks +3

 

Feb 1, 2014 12:30AM
avatar
If the Fed tapers QE to zero by December, 2014 then shortly afterwards growth should peak before we see rate increases sometime in 2015. So sell off some winners as the emerging market noise creates a 5-10% correction so you can buy something new cheaper.
Feb 1, 2014 9:08PM
avatar

Just for giggles.....(just doing that and drinking some coffee)


"Chimera".....I believe is also an investment REIT, that we held once upon a time.

Feb 2, 2014 9:28AM
avatar
A Clone states;
"as usual daves posts go right to the bottom with negative ratings.  People don't think like you Dave.  YOu are a radical.  Its about time you change the way you think"

So it means being Radical these days when you actually go out an research information and post your findings. No wonder America is continually being Dumbed Down. I will take being called Radical, all day long as compared to just posting whatever the Talking Head of the day states.Most if not all talking heads don't research nor care to. While folks like you prefer to stick your Head in the Sand and ignore Reality, most of us so-called Radical folks will be ahead of the curve. Failing to prepare is preparing to fail.
Feb 2, 2014 12:01PM
avatar

42 straight months of job growth and a market that`s doubled since Obama took office and Repubs

act like this is the 1930`s.What drugs are they on?I guess they liked the Bush years when we were losing 800,000 jobs a month and the market was down 37%.Fortunately most Americans are a lot

smarter than the jealous liars on Fox.

Feb 1, 2014 12:35PM
avatar
MG as per usual posted:
"I have to laugh...  Obama asks CEO's to hire people...  I hope they pay him the same kind of lip service Obama gave them!   The need to tell Obama to repeal Obamacare first.  Then cut government spending, and then CUT TAXES on working people.   
Until he is willing to do that, I'd say, come back when you are serious..."

Wow, I have to LAUGH at just how naive some folks are. Obama did extend the Bush Tax cuts for the Wealthy. He could have let it expire. But MG calls that Lip Service. Obama did retain Uncle Ben and his polices which heavily Favor Corporations. But MG calls that Lip Service. We need to do everything to improve the ACA, not repeal it. It's a potentially starting foundation, not the final Building.

Just stating cut Government spending is pointless. Stating eliminating Waste and Corruption means more. Stating ending the Family and Friends contracts and Slush funds means more. Some places Government Spending can be Cut, in some areas it needs to increase. You can't just cut with a Broad Brush as the Naive might suggest. The Populations is not shrinking nor is the Cost of doing Business.

It's Alice in Wonderland thinking that with a National Debt fast approaching $20Trillion, a Crumbling National Infrastructure, Stolen Funds from Social Security and Medicare, and a Global Debt/Currency Crisis due to $500-700 in scam Banking Derivatives that Taxes will be going down. MG, when you get serious about understanding what's actually happening in the Real World, Until he is willing to do that, I'd say, come back when you are serious
Feb 1, 2014 3:33PM
avatar
MG Posts:
"Printing 65-85 billion a month has only made the wealth richer.  That has gone on for 34 months, or 34,000 per family in the US.   Did you get your check"

Seeing that you have very little understanding of how QE actually works, no I wasn't looking for a Check from the FED nor parasites like you. Nor have I ever looked for it nor desired it. Your commie Style approached to posting suits you well. It masks, to the Naive, your Socialist Agenda for the already Wealthy.

Record Tax Revenue not due to actual Real Taxes, Record Revenue due to Financial Engineering. Seeing how we took several Years to Recover from far Lower Tax Revenues, one year hardly makes up for that. Stupid will tell you otherwise. Did America get smaller from 2008-2012, no. Did the cost of doing Business go down from 2008-2012, no. Did the SuperRich demand more in wages while telling everyone else to accept far less, YES.

FY 2013 - $2.71 trillion (estimate).
FY 2012 - $2.45 trillion.
FY 2011 - $2.3 trillion.
FY 2010 - $2.16 trillion.
FY 2009 - $2.1 trillion.
FY 2008 - $2.52 trillion.
FY 2007 - $2.57 trillion.
FY 2006 - $2.4 trillion.

MG wants you to think he runs a Business when he can't even figure how to run nor understand anything about money or business.


Feb 1, 2014 3:53PM
avatar
"The Fed in a statement released Friday said it made an estimated $79.5 billion in net interest income, a total largely driven by the $90.4 billion in interest income it made on its portfolio of Treasurys, mortgage bonds and other securities. The Fed is required to use its income to cover its operating expenses and send much of the rest to the Treasury’s general fund, where it is used to pay government bills and benefits. The payments to Treasury are called remittances."

"Fannie Mae: From Bailout Child to Government Cash Cow
 Published: Thursday, 9 May 2013 | 2:47 PM ET
By: Diana Olick CNBC"

U.S. Posts Record December Surplus on Fannie Mae Payments By Kasia Klimasinska Jan 13, 2014
"Payments to the Treasury from Fannie Mae and Freddie Mac were about $34 billion more last month than they were a year earlier, according to the report. Fannie Mae and Freddie Mac have taken $187.5 billion in U.S. aid since they were taken into conservatorship in 2008. They’ve returned $185.2 billion"

Not mention the effect of RECORD Corporate PROFITS, eventually that should mean Record Tax Revenues. Funny how they have been having record Profits for YEARS yet it has taken until 2013 to show in the tax Receipts.
Feb 1, 2014 12:21PM
avatar
chi·me·ra
noun \kī-ˈmir-ə, kə-\
Chimera : a monster from Greek mythology that breathes fire and has a lion's head, a goat's body, and a snake's tail
: something that exists only in the imagination and is not possible in reality

Good one Scott. I personally never put much stock in GDP number before or after the New Formula.  Which is something they always recalculate the way it's done. NextTimeUp will tell everyone otherwise. Some posters always resorting the same BS of name calling each Article that doesn't support their given Agenda a Liberal Spin, Get a freaking clue. Strongest in the Last 5 Years doesn't mean strongest ever. That's hardly spin, calling it liberal Bias however is.

The only folks really trying to Con America, the usually suspect spilling the save drivel on posting boards. Funny how these Con Artist can ignore the FACT that the Wage Gap has moved from 40 to 1 to well over 400 to 1. These same Con Artist can ignore the FACT that we have Record Stock Market Highs and Record Wealth in America. These same Con Artist ignore the Record Profits and Cash Hoards while Workers who produce that Wealth and Profits are rewarded with basically nothing but either declining wages and Benefits  and or Stagnation.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.