In surprise, GDP shrinks by 0.1 percent in fourth quarter
By Peter Schroeder - 01/30/13 08:45 AM ET
The nation's economy unexpectedly shrank by 0.1 percent in the fourth quarter of 2012, casting fresh doubt on the strength of the economy recovery.
The new estimate of gross domestic product (GDP) from the Commerce Department marks the first time the economy shrank since it was in the depths of the recession in mid-2009.
As the "fiscal cliff" loomed, a significant downturn in government and defense spending contributing to the surprising number.
Real federal government expenditures and investment fell 15 percent in the fourth quarter, compared to a 9.5 percent increase in the third. And national defense spending tumbled 22.2 percent, compared to a 12.9 percent boost in the third quarter. Nondefense spending actually increased 1.4 percent in the fourth quarter.
The dip came as a surprise to economists. Experts had believed the U.S. would post a modest economic gain of slightly over 1 percent, after logging a 3.1 percent increase in the third quarter.
The initial estimate for the fourth quarter will be revised twice going forward, but the surprising decline will draw fresh scrutiny to an economic recovery that many thought had finally solidified, positioning the U.S. to make major economic gains in the coming year.
The austere spending from the public and defense sectors was slightly offset by a continued surging of spending by consumers and businesses. Personal consumption expenditures were up 2.2 percent in the fourth quarter, compared to 1.6 in the third. And purchases of durable goods also climbed by 13.9 percent compared to 8.9 percent in the third.
Underlining that boost in personal spending was strong growth in personal income, which was up 7.9 percent, and disposable income was up 8.1 percent.
A significant decline in exports (5.7 percent) also contributed to the contraction. Exports had climbed 1.9 percent in the third quarter. State and local government spending was also down in the fourth quarter, 0.7 percent compared to a 0.3 percent gain in the third.
The new report also found that the nation's economy expanded by 2.2 percent in 2012 up from a 1.8 percent gain in 2011.