“The U.S. economy contracted slightly in the final months of 2012, as defense spending plummeted and businesses depleted their inventories, in a surprising development that could give hints of the economic challenges to come.
Gross domestic product fell at a 0.1 percent annual rate in the fourth quarter, the Commerce Department said Wednesday, far below the 1.1 percent gain that analysts had forecast. The number will be revised extensively in the months ahead as more complete data becomes available, but if the number stays in negative territory, it would be the first contraction for the U.S. economy since the second quarter of 2009.”
That’s not good news by any means, but it’s also not as bad as it might appear. In wake of the announcement, for example, the stock market plummeted a whopping 18 points, or 0.13 percent, as of 12:30 p.m. In addition, a new report from ADP, which monitors private-industry hiring, predicts that the economy added a decent 192,000 jobs in January.
“According to the ADP National Employment Report, private sector employers created an average of 183,000 new jobs per month during the last three months,” said Carlos A. Rodriguez, ADP’s president and chief executive officer. “This is an encouraging sign of steady improvement in the job market.”
So what drove the surprising GDP decline? According to the Wall Street Journal, a lot of it can be attributed to a sudden 15 percent reduction in federal spending in the fourth quarter. That was the largest single-quarter drop since 1973. Clearly, taking that much money out of a still-fragile economy had an impact.
To which Sen. Mitch McConnell responded, again according to the WSJ:
“Clearly, we need to address spending. There’s simply no other way to solve the problem.”
– Jay Bookman