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The U.S. Economic Month at a Glance: December 7, 2012

Impact of Hurricane Sandy on U.S. Economy Proves Modest … but Fiscal Cliff Looms

Assessments of the current state of the U.S. economy have been hampered somewhat by the damage to the Northeast created by Hurricane Sandy. This was especially evident in the latest manufacturing survey. The economy is also dealing with the uncertainty created by the looming fiscal cliff that could see taxes increase sharply and government spending cut by close to $100 billion if Congress and the White House fail to reach a deal before the end of this year. We assume that a deal will be reached and that the economy will record modest growth in the 2 to 2.5 per cent range in 2013.

Real GDP growth expanded by a higher-than-expected 2.7 per cent in the third quarter, up from the 1.3 per cent increase recorded in the previous quarter. The gain was mainly a result of higher government spending, which made its largest contribution to overall growth in the economy in three years. Inventory accumulation also boosted growth, although this could have a negative effect on the economy in the current quarter, as we expect businesses to pull back somewhat on inventory accumulation. The economy has made significant progress since the end of the recession, as evidenced by lower household debt and ongoing increases in bank lending. However, the uncertainty over the future course of fiscal policy continues to cast a dark shadow over the economy’s future prospects.

The impact of Hurricane Sandy was evident in the results of the latest survey of manufacturing activity. The Institute of Supply Management’s index of activity slumped to 49.5, down from 51.7 in October. The storm disrupted production in the Northeast region of the country, and the U.S. Federal Reserve estimates that Sandy subtracted a full percentage point from economic growth in October. Manufacturing should receive a boost over the near term as factories ramp up production to make up for the lost output.

Real GDP growth expanded by a higher-than-expected 2.7 per cent in the third quarter.

While Sandy played havoc with manufacturing activity, the storm contributed to a surge in vehicle sales last month. Sales increased to an annual level of 15.5 million units, up from 14.3 million in October, as purchases delayed by Sandy were moved to November. Also, some of the cars that were ruined during the storm were replaced in November. Sales should remain elevated over the next few months as more of the estimated 300,000 to 500,000 destroyed vehicles are replaced once households receive their insurance money. New car sales are also benefiting from another result of Sandy’s destruction of so many vehicles and the resulting jump in replacement demand—a spike in the price of used cars. Rising prices for used cars make purchases of new vehicles more attractive.

Fortunately, labour markets have not been disrupted by Sandy to the extent that many analysts feared they would be. The economy generated a higher-than-expected 146,000 jobs in November and the unemployment rate dropped to 7.7 per cent. Business and professional services, as well as leisure activities, were the main contributors to the job gains. As expected, the construction sector shed 20,000 jobs in November, but many of these will come back over the next few months as reconstruction efforts in the Northeast ramp up. The decline in the unemployment rate was mainly a result of a fall in the labour force participation rate, possibly because the effects of Sandy forced some workers to temporarily exit the labour market.

The ongoing improvement in the economy is apparent from the Conference Board Inc.’s index of consumer confidence. The index increased to 73.7 in November—its highest reading since the beginning of 2008. The increase is mainly a result of recent gains in labour markets and a pullback in gasoline prices following the end of the peak summer driving season. Recent increases in confidence could be short-lived, however, if the economy tumbles over the fiscal cliff at the end of this year.

U.S. Data Released to December 7, 2012

Monthly growth rates
(unless otherise indicated)
Latest month
One mo. ago
Two mos. ago
Three mos. ago
Four mos. ago
Five mos. ago
Six mos. ago
month avg.
Leading indicators
Consumer confidence (1) Nov. 73.7 73.1 68.4 61.3 65.4 62.7 64.4 67.0
Institute for Supply
Management (PMI) (1)
Nov. 49.5 51.7 51.5 49.6 49.8 49.7 53.5 50.8
Domestic demand
Personal consumption Oct. –0.18 0.75 0.32 0.35 –0.02 –0.17 0.24 0.18
Personal income Oct. 0.00 0.36 0.08 0.14 0.25 0.15 0.03 0.15
Real personal disposable income Oct. 0.01 0.35 0.08 0.14 0.23 0.14 0.03 0.14
Savings rate (1) Oct. 3.4 3.3 3.7 3.9 4.1 3.9 3.5 3.7
Retail sales Oct. –0.30 1.33 1.14 0.77 –0.79 –0.10 –0.63 0.20
Motor vehicle sales (1)
(million units, annualized)
Nov. 15.5 14.3 14.9 14.5 14.1 14.4 14.0 14.5
Housing starts (1) (000s) Oct. 894 863 750 728 754 706 747 777
Industrial production Oct. –0.43 0.18 –1.11 0.68 0.00 –0.01 0.83 0.02
Capacity utilization rate (1) Oct. 77.8 78.2 78.2 79.2 78.8 78.9 79.0 78.6
CPI (Y/Y) Oct. 2.2 2.0 1.7 1.4 1.7 1.7 2.3 1.9
Core CPI (Y/Y) Oct. 2.0 2.0 1.9 2.1 2.2 2.3 2.3 2.1
Producer price index (Y/Y) Oct. 2.3 2.2 2.0 0.5 0.8 0.7 1.8 1.5
Labour market
Employment (000s) (2) Nov. 146 138 132 192 181 45 87 132
Unemployment rate (1) Nov. 7.7 7.9 7.8 8.1 8.3 8.2 8.2 8.0
Credit market
Federal funds rate (1) Oct. 0.16 0.14 0.13 0.16 0.16 0.16 0.14 0.15
90–day Treasury bill rate (1) Oct. 0.10 0.11 0.10 0.10 0.09 0.09 0.08 0.10
30–year Treasury note (1) Oct. 2.90 2.88 2.77 2.59 2.70 2.93 3.18 2.80
(1) Level
(2) Level change
n.a. = not applicable
Sources: The Conference Board of Canada; U.S. Department of Commerce, Bureau of Economic Analysis.

Labour Markets

Labour Markets

Income and Consumption

Income and Consumption



Consumer Markets

Consumer Markets

Financial Markets

Financial Markets

Business Markets

Business Markets

Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.
Sources: The Conference Board of Canada; Moody's

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Kip Beckman Kip Beckman
Principal Research Associate
Forecasting and Analysis

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