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How Big a Concern was the Weak GDP Report?

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    UBS Chief Economist Maury Harris on the outlook for the economy.

  • Duration 5:02
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Steady now as Protestant US economists.

For UBS investment research Maury Harris welcome to -- sense of this up pull back in GDP for media -- -- expecting growth.

It is the first take of the -- quarter -- reads on gross domestic product government spending came weigh in especially in the defense sector.

Is this something you get concerned about are we on track for a recession which can be two consecutive quarters of negative growth.

Well you know you ask yourself how -- the market shrugged off for report that we've superficially this week.

And the reality was when you looked underneath the hood -- -- speak and looked at some of the details.

The consumer spending was decent.

The housing was booming and most importantly.

Businesses started doing capital spending again they'd pull back in the third quarter but it came right back in the fourth quarter.

Even though there were all these concerns about the fiscal -- it would it tells you is there's a lot of resilience in the private sector.

So you're taking a positive spin on this -- looking at the bright side but.

We're still facing sequestration these deep cuts in defense spending we know that the 22% decline in defense spending in the fourth quarter.

Led to this negative -- is a big driver of the negative print on this GDP figure today so putting even more defense cuts that's likely gonna cause.

Right could even bring the GDP at a weaker point.

That said I hear what you're saying about the private sector -- perhaps the private sector.

Ignoring.

The public sector but you can't ignore how much of a role government spending has on a broader economy.

So maybe there's a camp that says hey maybe it's good governments not spending as much but again it's a huge contributor to our output.

Well as a couple of things to think about -- on government spending first evolved.

The defense spending already came down quite considerably in the fourth quarter solar on their way to cutting spending -- have so.

Some of they hit that we were thinking we -- gonna take this year on defense spending.

We already got that down late last year -- the incremental negative effect isn't what we thought it would be.

Earlier because you cut it so much already in the fourth quarter.

Now I love their viewpoint that these politicians.

-- I call what if that they're working with calling the fiscal -- and love that do you in the fiscal cliff.

And that that it's gonna be typical may wait you're very very last minute.

And then there's some kind of compromise.

There's some -- room.

And yes you do see some further government spending cuts but I don't think they're gonna be in the order of magnitude of specified in the -- westar.

The Democrats don't wanna cut the non defense spending the Republicans don't want to cut the defense spending.

You know this is apparent expression kick the can down the road -- that's probably what they're gonna do on the budget.

-- her and the Federal Reserve today maintaining this easy money policy.

Liquidity is I -- assistance or just flush with cash right now we see this in the bond rates historically low yields and the stock market at these multi year highs and pushing an all time high.

On the Dow Jones Industrial Average -- very disconnect and no point to some of the bright lights in the economy.

In the sector -- people just ignoring what's going on in the government and this fiscal -- as -- well.

Well.

One of the most important things going on is the Fed the Fed keeps pumping money into the economy.

Gosh there.

Buying about 85 billion dollars a month and bonds.

In this -- flooding into the banks the banks are heartily putting all of it to work right away but they're putting some of it to work.

They're putting enough money to work that the economy still moving forward and you see this when you look at banks' balance sheet.

Banks have been expanding their balance sheets are lending again and this is partly because they were flooded with deposits because the -- -- and all this money is so.

You don't think then that it's disappointing print I'm GDP will derail the market rally.

I don't think you will.

And at what -- in terms of perceptions of what's happening.

In the GDP number got people's attention today good you know Friday we get through employment numbers for January.

They're gonna probably there will probably be more important.

For what people think the economy's really doing everything post numbers are -- on what basis would you expecting for Friday sat December report what well we think that at least it can't release January Bernard -- how time flies.

Well I integration -- January.

And we we think the payrolls went up a 175000.

In the unemployment rate went down a tenth and that's 175000.

Would be 25000 better than you -- on average last year.

And -- the Fed's not gonna do anything its unemployment falls to six and a half percent -- -- got some wiggle room to enjoy these easy policies accommodative fed and this wealth effect that's blown up the stock market thank -- Very much.

-- -- Harris.

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