A Commerce Department report on Jan. 30 showed the economy shrank at a 0.1% annual rate in the final three months of the year, as the biggest plunge in defense outlays in 40 years swamped gains in consumer and business spending. Exports fell at a 5.7% annual rate, the biggest drop since the first three months of 2009, causing a widening of the trade gap that trimmed gross domestic product by 0.25 percentage point, it said.
A weaker U.S. currency will make American exports more attractive to overseas buyers. As of Feb. 1, the dollar had dropped 4% from last year’s peak on June 1 against a trade-weighted basket of currencies from its biggest trading partners, according to Federal Reserve data.
Caterpillar, the world’s largest maker of construction and mining equipment, may benefit from improving prospects in the U.S. and abroad.
“The key phrase here when we talk about the world economy in 2013 is a bit better but still weak,” Michael DeWalt, a spokesman for the Peoria, Illinois-based manufacturer, said during a Jan. 28 earnings teleconference. “In the United States, we’re becoming increasingly optimistic,” and “in China, we’re expecting improvement in 2013,” he said.
China, the world’s second-biggest economy, accelerated in the final three months of 2012 for the first time in two years. The growth momentum is “relatively strong,” its central bank said this week, while warning that inflation risks may rise.
The 17-nation euro economy also is starting to stabilize after the sovereign debt crisis drove it into a recession last year. Economic weakness will prevail only “in the early part” of this year, European Central Bank President Mario Draghi said at a press conference in Frankfurt yesterday. “Later in 2013, economic activity should gradually recover, supported by our accommodative policy stance.”
Draghi signaled that policy makers are concerned the strength in the euro, which reached a 14-month high against the dollar this month, will hamper their efforts to pull the region’s economy out of the slump.
Concern about Europe is among reasons some American companies like Cummins Inc., a Columbus, Indiana-based maker of engines for trucks and power-generation equipment, are cautious.
“We start 2013 with a high degree of uncertainty about business conditions in several markets,” Thomas Linebarger, chairman and chief executive officer, said on a Feb. 6 earnings call. “In Europe, it’s hard to see a catalyst for growth in the near term.”