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| Version 1 | Version 2 |
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| US economy shrinks unexpectedly despite improving job market | US economy shrinks unexpectedly despite improving job market |
| (about 3 hours later) | |
| The US economic recovery juddered to a halt in the final months of 2012 as government slashed defense spending, businesses cut back, and Washington fought over the fiscal cliff budget crisis. | The US economic recovery juddered to a halt in the final months of 2012 as government slashed defense spending, businesses cut back, and Washington fought over the fiscal cliff budget crisis. |
| The nation's gross domestic product (GDP) shrank for the first time in three and a half years during the fourth quarter, dropping at an annual rate of 0.1%, the Commerce Department said Wednesday. It was the US's worst economic performance since October 2009, and came as economists had been expecting mild growth of around 1%. | The nation's gross domestic product (GDP) shrank for the first time in three and a half years during the fourth quarter, dropping at an annual rate of 0.1%, the Commerce Department said Wednesday. It was the US's worst economic performance since October 2009, and came as economists had been expecting mild growth of around 1%. |
| Cuts in government spending sent the economy into reverse following a 3.1% annualised increase in GDP in the third quarter. Federal spending fell by 15% as private business inventories decreased. The decline in federal spending was the largest fall since 1973. Defense spending fell 22%, the largest fall since 1972 and the end of the Vietnam war. | |
| The surprise fall comes ahead of the release of the latest official jobs figures on Friday. Unemployment has been steadily, if slowly, declining in recent months. | The surprise fall comes ahead of the release of the latest official jobs figures on Friday. Unemployment has been steadily, if slowly, declining in recent months. |
| According to payroll processor ADP and forecaster Moody's latest tally of private sector jobs, released Wednesday, the private sector added 192,000 jobs this month, far higher than the 165,000 economists surveyed by Dow Jones Newswire had been expecting. | According to payroll processor ADP and forecaster Moody's latest tally of private sector jobs, released Wednesday, the private sector added 192,000 jobs this month, far higher than the 165,000 economists surveyed by Dow Jones Newswire had been expecting. |
| ADP did, however, revise its December job down to 185,000 from 215,000 reported a month ago. | ADP did, however, revise its December job down to 185,000 from 215,000 reported a month ago. |
| Mark Zandi, chief economist of Moody's Analytics, said, "The job market is slowly, but steadily, improving. Monthly job gains appear to have accelerated from near 150,000 to closer to 175,000. Construction is finally kicking into gear and more than offsetting the weakness in manufacturing. The recent gains may be overstating any improvement, particularly in the context of recent revivals in growth at the start of the past three years, but the gains are encouraging nonetheless." | Mark Zandi, chief economist of Moody's Analytics, said, "The job market is slowly, but steadily, improving. Monthly job gains appear to have accelerated from near 150,000 to closer to 175,000. Construction is finally kicking into gear and more than offsetting the weakness in manufacturing. The recent gains may be overstating any improvement, particularly in the context of recent revivals in growth at the start of the past three years, but the gains are encouraging nonetheless." |
| The GDP news knocked US stock markets after one of their best runs since the financial crisis. The Dow Jones hit a 52-week high yesterday and has closed up seven of the last eight trading days. By noon all the US stock markets were in negative territory. | |
| "While inventories and government are what are most likely to catch the market's eye it is hard to put a particularly positive spin on such a weak headline. It will be important for Friday's employment number to settle people's nerves that this reflect the fiscal cliff concerns rather than a genuine stalling of the US economy," said David Semmens, a senior US economist at Standard Chartered. | "While inventories and government are what are most likely to catch the market's eye it is hard to put a particularly positive spin on such a weak headline. It will be important for Friday's employment number to settle people's nerves that this reflect the fiscal cliff concerns rather than a genuine stalling of the US economy," said David Semmens, a senior US economist at Standard Chartered. |
| Some economists warned not to read too much into the report. "Frankly, this is the best-looking contraction in US 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." | |
| Revisions to the GDP figure are due in February and March and the final figure could go up or down significantly. | Revisions to the GDP figure are due in February and March and the final figure could go up or down significantly. |