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Economy Shrank In Q4 Of 2012

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WASHINGTON — The U.S. 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, but 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.

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.

The Federal Reserve referred to the fourth-quarter slowdown in a statement after it ended a policy meeting Wednesday. The U.S. economy appears to have “paused in recent months,” the Fed said, mainly because of temporary factors. The Fed reaffirmed its commitment to stimulating the economy by keeping borrowing costs low for the foreseeable future.

For all of 2012, the economy expanded 2.2 percent. For 2013, analysts generally think the economy will grow at a steady if modest pace of roughly 2 percent as the housing and auto sectors continue to recover along with bank lending and consumer spending.

Subpar economic growth has held back hiring. The economy has added about 150,000 jobs a month, on average, for the past two years. That’s barely enough to reduce the unemployment rate, which has been a still-high 7.8 percent for two months.
— This article appeared on page B1 of the Albuquerque Journal

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