Economy contracts in 4th quarter by 0.1%

Apparently, the shrikage is largely the result of a big hit in defense spending. Other one time factors also played a role.

Associated Press:

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 and the first contraction since the second quarter of 2009.

Economists said the surprise decrease in the nation's gross domestic product wasn't as bad as it looked. The weakness was primarily the result of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.

Those volatile categories offset a 2.2 percent increase in consumer spending, up from only 1.6 percent in the previous quarter. And business spending on equipment and software rose after shrinking over the summer.

"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 note to clients. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."

We can certainly hope that Ashworth is correct. But it should be pointed out that even if the 4th quarter numbers are revised upwards in coming months, it will end up no where near the 3.1% growth in the 3rd quarter.

They can spin this all they want, it should still be considered a step backward in the recovery.


Apparently, the shrikage is largely the result of a big hit in defense spending. Other one time factors also played a role.

Associated Press:

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 and the first contraction since the second quarter of 2009.

Economists said the surprise decrease in the nation's gross domestic product wasn't as bad as it looked. The weakness was primarily the result of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.

Those volatile categories offset a 2.2 percent increase in consumer spending, up from only 1.6 percent in the previous quarter. And business spending on equipment and software rose after shrinking over the summer.

"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 note to clients. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."

We can certainly hope that Ashworth is correct. But it should be pointed out that even if the 4th quarter numbers are revised upwards in coming months, it will end up no where near the 3.1% growth in the 3rd quarter.

They can spin this all they want, it should still be considered a step backward in the recovery.


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