US markets slip as economy shrinks in fourth-quarter

31 Jan 2013 Evaluate

The US markets turned lower on Wednesday, retreating from five-year highs after the Federal Reserve stated that growth in economic activity paused in recent months, and as fourth-quarter data showed a surprise contraction in gross domestic product. The Federal Reserve maintained its aggressive bond-buying policy given the downside risks to the economic outlook. In a statement after a two-day meeting, the Fed stated that it would keep buying $85 billion a month in mortgage bonds and treasury. The central bank also noted weak growth in the final three months of last year, saying that the pause in activity was due to weather and other transitory factors. Although strains in global financial markets have eased somewhat, the Fed continues to see downside risks to the economic outlook.

Besides, the GDP shrank for the first time since the 2007-2008 recession. The US economy shrank in the fourth quarter for the first time since the recession. Gross domestic product contracted by a 0.1% annual rate, down from 3.1% growth in the third quarter, based on the first of three readings by the Commerce Department. The fourth-quarter retreat mostly stemmed from lower inventories and a plunge in military spending. The government spending declined 6.6% and defense spending dropped 22.2%, the largest fall in defense spending since 1972. Government spending subtracted 1.33 percentage points from growth. On the other hand, private-sector employment got off to a good start in 2013, according to a report from payroll-processing firm Automatic Data Processing Inc. The US added 192,000 private-sector positions in January, ADP estimated, led by a 177,000 jump in the number of service-providing jobs.

The Dow Jones Industrial Average dropped 44.00 points or 0.32 percent to 13,910.40, the Nasdaq lost 11.35 points or 0.36 percent to 3,142.31 and the S&P 500 was down by 5.88 points or 0.39 percent to 1,501.96.

Indian ADRs closed mostly in green on Wednesday, HDFC Bank was up by 0.63%, Infosys was up by 0.38% and Dr. Reddy’s Lab was up 0.25%. On the other hand, ICICI Bank was down 0.57% and Tata Motors was down 0.16%.

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