U.S. GDP Growth Contracts Slightly in Fourth Quarter

January 30, 2013

U.S. GDP Growth Contracts Slightly in Fourth Quarter

The Bureau of Economic Analysis (BEA) reported today that the U.S. economy shrank 0.1 percent during the fourth quarter of 2012. This contraction was the worst quarterly performance since the financial crisis in 2009. Some say this disappointing growth is from a scale back in government spending.

Think of government spending as a sugar high. The benefits might appear helpful in the short term, but in the long term most everyone recognizes the current rate of government spending is not sustainable. In a study released by Robert Barro and Charles Redlick of Harvard University, government spending may be poor for economic stimulus. The report found that that government spending hurts the economy by reducing investment and weakening consumer-buying power.

According to Nigel Gault, the chief U.S. economist at HIS Global Insight, “This [contraction] is not an indicator of recession.” While output may be down, consumers spending and business investment are both up. The greatest contributing factor to the slowdown was a decrease in national defense spending, which fell by roughly 22 percent in the fourth quarter of 2012.

The BEA will release a revised estimate in late February as more detailed and comprehensive data become available.

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