U.S. Economy Shrinks by 0.1%, First GDP Contraction Since Recession Ended

defense cutsBy CHRISTOPHER S. RUGABER

WASHINGTON -- The U.S. economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That's a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

The surprise contraction could raise fears about the economy's ability to handle tax increases that took effect in January and looming spending cuts.

Still, the weakness may be because of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.

And those volatile categories offset faster growth in consumer spending, business investment and housing - the economy's core drivers of growth.

Another positive aspect of the report: For all of 2012, the economy expanded 2.2 percent, better than 2011's growth of 1.8 percent.

The economy may stay weak at the start of the year because Americans are coming to grips with an increase in Social Security taxes that has left them with less take-home pay.

Subpar growth has held back hiring. The economy has created 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 7.8 percent for the past two months.

Economists forecast that unemployment stayed at the still-high rate again this month. The government releases the January jobs report Friday.

The slower growth in stockpiles comes after a big jump in the third quarter. Companies frequently cut back on inventories if they anticipate a slowdown in sales. Slower inventory growth means factories likely produced less.

Heavy equipment maker Caterpillar, Inc. said this week that it reduced its inventories by $2 billion in the fourth quarter as global sales declined from a year earlier.

The biggest question going forward is how consumers react to the expiration of a Social Security tax cut. Congress and the White House allowed the temporary tax cut to expire in January, but reached a deal to keep income taxes from rising on most Americans.

The tax increase will lower take home pay this year by about 2 percent. That means a household earning $50,000 a year will have about $1,000 less to spend. A household with two high-paid workers will have up to $4,500 less.

Already, a key measure of consumer confidence plummeted this month after Americans noticed the reduction in their paychecks, the Conference Board reported Tuesday.

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Gum

What makes anyone think that the recession ended? I don't believe government stats, since we have liars and spin-masters in power.

February 13 2013 at 11:45 AM Report abuse rate up rate down Reply
dembaitnswitch

Hey Barry, it's the economy stupid.

February 03 2013 at 9:29 AM Report abuse rate up rate down Reply
Gloria

til I looked at the bank draft which said $5367, I accept that...my... best friend woz like actualey receiving money in there spare time at their laptop.. there brothers friend has done this 4 only about eighteen months and as of now repayed the dept on their place and bourt a top of the range Mini Cooper. go to, Great60.com

February 02 2013 at 4:16 PM Report abuse +1 rate up rate down Reply
Marc Thompson

Obama to CNN will blame George W & Hurricane Sandy. However, the fouth quarter is generally the strongest and a springboard for the next calendar year. Just as the lame stream media protected the Obama / Hillary team from Benghazi, they will continue to do so in every way they possibly can as the media is the Democratic Party's greatest Super Pack!

Wait till Obamacare kick in... you'll soon see how costly to individuals & society the free deal real is, that's all folks!

January 31 2013 at 9:25 PM Report abuse rate up rate down Reply
Marc Thompson

Obama to CNN will blame George W & Hurricane Sandy. However, the fouth quarter is generally the strongest and a springboard for the next calendar year. Just as the lame stream media protected the Obama / Hillary team from Benghazi, they will continue to do so in every way they possibly can as the media is the Democratic Party's greatest Super Pack!

Wait till Obamacare kick in... you'll soon see how costly to individuals & society the free deal real is, thta's all folks!

January 31 2013 at 9:24 PM Report abuse rate up rate down Reply
.kowalski440mag

Biggest military cuts in 40 yrs? I thought clinton cut $$$$$$$$$$ during his term. I remember dems. talking about ways to spend the 'Peace Dividend.'

January 31 2013 at 8:51 AM Report abuse -2 rate up rate down Reply
1 reply to .kowalski440mag's comment
On O Mus

He did. I guess they forgot about that.

January 31 2013 at 12:08 PM Report abuse -2 rate up rate down Reply
Dupree Maximus

Well, well, well, ...... and so the newly elected "2nd" term president is still a$$ backwards in solving the economic problems of this country! The last time he opened his mouth, he was blaming Bush! Now four years later his butt kissing minions are blaming the GOP! ..... WTF?! When will the poor economic situation of this country be rightfully blamed on Obama?! All I can say is "you wanted this to happen by voting this man in for a second term", .... SOoooo .....All I can tell ya is, for the next four years, drop your pants, bend over, grab your ankles .... and SMILE .... all the while Obama's breaking it off in ya!

January 30 2013 at 7:06 PM Report abuse +1 rate up rate down Reply
jeffinalaska2

How can cancers such as obama, fienstien, piers morgan to name a few, be allowed to lie about the shootings in sandy hook, that a semi automatic rifle killed those children and adults, when it was clearly in a locked trunk and ballistics and the mortician clearly proved it. Even Stevie Wonder can see through their BS.
With cancers such as this the liberal media is all to eager to felch out their personal agenda,and allow it to continually metastasize. This administration has sunk so low they haven't the arm length to reach up and touch bottom.
Truth and facts mean nothing to a liberal.They react with feelings. They will lie through omission,interpret, distort the constitution of the U.S.A. to form their utopian world. There is no such thing as common-sense
gun control with liberals whose sole objective is confiscation.
Own it, you earned it.

January 30 2013 at 6:43 PM Report abuse rate up rate down Reply
mrspelosi

Well see you later. I am off to do some deficit spendiing. My bus has arrived and I see that they save my seat all the way in the back.

Buh bye dearest darlings.

January 30 2013 at 5:15 PM Report abuse -1 rate up rate down Reply
1 reply to mrspelosi's comment
mrspelosi

Smooches everyone.

January 30 2013 at 5:15 PM Report abuse -2 rate up rate down Reply
mrspelosi

somey5
Will you be voting for Cheney/Bachmann in 2016???

________________________________________

Oh no dear. I am hoping that a communist will run in 2016 dear. I know that, that would definitely please you darling. I know it would please me and a lot of my democrat counter parts doll.

January 30 2013 at 5:07 PM Report abuse -1 rate up rate down Reply