TribLIVE

| Business


 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

U.S. economy shrinks 0.1%, 1st time since 2009

About The Tribune-Review
The Tribune-Review can be reached via e-mail or at 412-321-6460.
Contact Us | Video | Photo Reprints

By The Associated Press

Published: Wednesday, Jan. 30, 2013, 9:28 a.m.

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

Most-Read Business Headlines

  1. Chocolate prices expected to soar as ingredients grow more expensive
  2. Squeezed by competition, Chobani to expand offerings
  3. Under the Hood: A chance to take top cars for a spin
  4. Mazda recalls 109,000 older SUVs
  5. Chrysler’s Easter eggs fun for vehicle owners
  6. Long-term unemployed struggle to find — and keep — new jobs
  7. Investment in Western Pa. startups reaches 5-year high
  8. Pa. unemployment rate falls to lowest since 2008; 12,000 more enter workforce
  9. 2014 Beetle is celebration of 65th American anniversary
  10. Pandora sued by record companies
  11. Shale pioneer hires Chesapeake for drilling job
Subscribe today! Click here for our subscription offers.