Economy Shrinks for 1st Time Since 2009

Unexpected GDP drop comes as defense spending slumps

By Kate Seamons,  Newser Staff

Posted Jan 30, 2013 7:52 AM CST

(Newser) – As "firsts" go, this is an unfortunate one: The US economy contracted in Q4, marking the first time it has done so since the recession ended. The AP reports that the biggest cut in defense spending in four decades, reduced exports, and sluggish growth in company stockpiles contributed to the unexpected decline in GDP, which dropped at a 0.1% annual rate between October and December. Just how big of a surprise was it? Of the 83 economists survey by Bloomberg, not one expected the decline, with projections ranging from a 0.3% to 2.1% gain.

Whether it's a harbinger of doom (raising fears the economy won't be able to handle new tax increases now in effect) or a one-off remains to be seen, notes the AP. The Wall Street Journal reports that the 15% decrease in federal government spending marked the biggest drop since 1973—a slump that strong consumer spending just couldn't overcome. Still, the GDP grew 2.2% for all of 2012, besting 2011's 1.8%. Meanwhile, payroll processor ADP today reported a gain of 192,000 jobs in January; that tops a revised December, which was lowered from 215,000 jobs to 185,000, reports the AP.

GDP dropped at a 0.1 % annual rate in Q4.
GDP dropped at a 0.1 % annual rate in Q4.   (AP Photo/Carolyn Kaster)
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