January 2013 Flash Report

The Federal government avoided addressing the nation’s fiscal issues by extending the debt ceiling (once again) and delaying sequestration for several months. Markets seemed to breathe a sigh of relief upon this realization and merely shrugged as 4th quarter GDP shrank by 0.1%, badly missing the low end of the forecast growth range (1%). Rationally, it appears that businesses were conservative with spending last quarter, lowering inventories as the fiscal cliff approached but consumers didn’t let the prospect of higher taxes/slower growth spoil the holiday season. Unfortunately, the popularly and oft-cited “surge” in 4th quarter disposable incomes was largely a result of one-time factors like special dividends and accelerated bonuses aimed at avoiding higher tax bills in 2013. All-told, investor sentiment is remarkably rosy given the political backdrop, higher taxes on nearly all working Americans, and GDP headed in the wrong direction.

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