US economy shrinks 0.1 pct., first time in 3½ years; deep cut in defense ... - Washington Post
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.
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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. Commerce estimated that businesses paid nearly $40 billion in early dividends. After-tax income, adjusted for inflation, rose 6.8 percent, the most in nearly four years.
Superstorm Sandy likely also dragged on growth by closing factories, disrupting shipping and shutting down retail stores. While the department did not specify Sandy’s effect on GDP, it estimated that Sandy destroyed about $36 billion in private property and $8.6 billion in government property.
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.
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Dylan Matthews Guest worker programs are popular among politicians. But history suggests that the workers don't always leave.
Lori Montgomery Lawmakers aren’t optimistic they’ll reach a deal to avoid the sequester.
Howard Schneider and Danielle Douglas Global regulators started fast in their push to protect the financial system, but major problems remain.
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. Commerce estimated that businesses paid nearly $40 billion in early dividends. After-tax income, adjusted for inflation, rose 6.8 percent, the most in nearly four years.
Superstorm Sandy likely also dragged on growth by closing factories, disrupting shipping and shutting down retail stores. While the department did not specify Sandy’s effect on GDP, it estimated that Sandy destroyed about $36 billion in private property and $8.6 billion in government property.