U.S. economy shrinks 0.1%, 1st time since 2009
WASHINGTON — The economy unexpectedly shrank from October through December, the first quarterly drop since 2009 and a reminder of the economy's vulnerability as automatic cuts in government spending loom.
The Commerce Department said the economy shrank at an annual rate of 0.1 percent mainly because companies restocked at a slower rate and the government slashed Defense spending. Those trends partly reflected uncertainty late last year about the fiscal cliff, which Congress averted in a deal reached Jan. 1.
Economists say those factors could prove temporary. Still, the sharp slowdown from the 3.1 percent annual growth rate in the July-September quarter, also driven by a drop in U.S. exports, raised concerns about 2013.
Congressional Republicans seem determined to permit the deep cuts to strike the Pentagon and domestic programs to try to force Democrats to make budget concessions. And Americans are coming to grips with an increase in Social Security taxes that has begun to leave them with less take-home pay.
Government spending cuts and slower company restocking, which can fluctuate sharply, subtracted a combined 2.6 percentage points from GDP. Those two factors offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer.
Consumer spending added 1.5 percentage points to GDP, and business investment added 1.1 points — both stronger contributions than in the third quarter.
Economists stressed that the key factors that dragged on GDP in the fourth quarter could prove short-lived, even though the economy faces other threats in 2013.
“Frankly, this is the best-looking contraction in U.S. GDP you'll ever see,” Paul Ashworth, an economist at Capital Economics, said in a research note. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”
For all of 2012, the economy expanded 2.2 percent, better than 2011's growth of 1.8 percent.
The plunge in defense spending in the October-December quarter followed a jump in the third quarter. The fluctuation might have reflected higher-than-usual spending that occurred in the July-September period in anticipation of government spending cuts later in the year. Some defense contractors reported lower government spending at the end of the year.
Last week, General Dynamics blamed a $2 billion loss in the fourth quarter on “slowed defense spending.”
Exports fell by the most in nearly four years, a result of Europe's recession and slower growth in China and some other large developing countries.
Incomes, though, jumped last quarter as companies paid out special dividends and bonuses ahead of expected tax increases in 2013.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Amid struggles, top fiscal executive to leave EDMC
- High pollution levels found near Ohio gas wells
- Natrona Bottling Co. keeps soda pop operation focused on craft, taste
- PPG Industries to buy Westmoreland Supply paint store chain
- Chevron puts $20M into educating, training Appalachian workers
- Plastics, tech sectors crucial to cracker plants
- EDMC loses $664M; executives receive six-figure bonuses
- Fannie Mae might take 3% down
- Allegheny Technologies reports $700,000 loss in 3Q
- Hackers rip into heart of open-source software
- IBM to pay $1.5B to shed chip division