This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html

The article has changed 8 times. There is an RSS feed of changes available.

Version 1 Version 2
U.S. Economy Unexpectedly Contracted in Fourth Quarter U.S. Economy Unexpectedly Contracted in Fourth Quarter
(35 minutes later)
The United States economy contracted unexpectedly in the final quarter of 2012, hurt by weaker exports, a drop in military spending and a slower buildup in inventories. The United States economy unexpectedly reversed course in the final quarter of 2012 and contracted at a 0.1 percent rate, its worst performance since the aftermath of the financial crisis in 2009.
The Commerce Department said Wednesday that economic output in the quarter fell at an annual rate of 0.1 percent, compared with growth at a 3.1 percent pace in the third quarter. The drop was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. Anxieties about the fiscal impasse in Washington also contributed to the slowdown.
It marked the economy’s worst performance since the second quarter of 2009. While economists expected output to decline substantially from the 3.1 percent annual growth rate recorded in the third quarter, the negative number caught Wall Street off-guard. It was the weakest economic report since the second quarter of 2009.
The third-quarter figures had been bolstered by a big jump in inventories, so part of the slowdown was expected as businesses eased back in the fourth quarter. Still, the magnitude of the pullback caught economists by surprise. “I’m a little surprised,” said Michael Feroli, chief United States economist at JPMorgan. “It grabs your attention when you have a negative number across everyone’s screens.”
Businesses may also have cut back on production because of the fiscal uncertainty in Washington, economists said. In addition, exports have been hurt by slower growth overseas, especially in Europe. Stocks were modestly higher in early trading on Wall Street, as some traders shrugged off the unexpected drop.
Before Wednesday’s announcement, the consensus estimate among economists for fourth-quarter growth stood at 1.1 percent. Mr. Feroli had been expecting growth to come in at 0.4 percent, which was well below the 1.1 percent consensus among economists on Wall Street. Still, Mr. Feroli said there were some hints the economy was performing slightly better than the headline number suggested.
Because data for exports and inventories tends to be volatile, there was a wide range in the predictions. For example, while JPMorgan anticipated growth of 0.4 percent for the fourth quarter, Barclays expected a 1.5 percent increase. The 22.2 percent drop in military spending – the sharpest quarterly drop in more than four decades – along with the drop in inventories and exports overwhelmed more positive indicators in the private sector, he said.
For example, final sales to private domestic purchasers, which strips out government spending as well as trade and inventories, rose by 2.8 percent. “Consumers and businesses kept spending at a pretty steady pace,” Mr. Feroli said. “There was a lot of noise that moved the headline around.”
For the entire year, the economy grew by 2.2 percent, a slight improvement from the 1.8 percent annual rate in 2011.
Still, with unemployment stubbornly high at 7.8 percent and growth expected to remain slow in the first quarter, the poor report Wednesday was likely to set off more finger-pointing in Washington.
The compromise between President Obama and Congress earlier this month allowed a temporary cut in Social Security taxes to expire, which is expected to crimp growth in the first quarter. The change will cost a worker earning $50,000 a year an extra $1,000 annually.
Indeed, a consumer confidence survey released Tuesday by the Conference Board showed a sharp downturn in January, which economists attributed in part to financial anxiety arising from the reduction in take-home pay.
The consensus estimate for early 2013 is currently calling for output to rise at an annual rate of 1.5 percent, but that number may come down in the wake of Wednesday’s report.
This was the Commerce Department’s first estimate of fourth-quarter growth; revisions are due in February and March, so the final figure could go up or down significantly.This was the Commerce Department’s first estimate of fourth-quarter growth; revisions are due in February and March, so the final figure could go up or down significantly.
But economists expect that slow growth has continued into the first quarter of 2013, with the consensus estimate currently calling for output to rise at an annual rate of 1.5 percent.
Consumers have been more cautious recently, especially because of a tw0-percentage-point increase in payroll taxes beginning this month that will cost a worker earning $50,000 a year an extra $1,000 annually. That was reflected in a consumer confidence survey released Tuesday by the Conference Board, which reported a sharp downturn in January that it attributed in part to financial anxiety arising from a reduction in take-home pay.