Economy Shrank in 4q, Govt. Says

...three year growth streak ends

Paul Brandus (Jan. 30, 2013)

The U.S. economy shrank 0.1% in the 4q of 2012, the government says, a major surprise to economists who were expecting growth of 1.0%. Although GDP figures will be revised two more times in coming months, for now it looks like the economy's growth streak that began in the summer of 2009 has come to an end. 

What happened? Why did the economy shrink? Big declines in government spending, which fell 15.0%, on an annualzed basis. Defense cuts weighed particularly heavily. Also contributing to the slowdown: companies spent less on inventory - after a big buildup in 3q. (WWR mentioned this 3 months ago).  

As a driver of ecomomic activity, government spending plays a big role; but coming spending cuts - the so-called "sequester" could, experts fear, push the economy into recession. So could a decline in consumer spending - two-thirds of economic activity - which could occur now that a two-year payroll tax cut of 2% has expired. A recession is officially considered to occur when the economy shows negative growth for two quarters in a row. It appears we're halfway there.  

You can read the full government report on the economic slowdown here

-Paul Brandus 

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