U.S. Economy Slowed in 4th Quarter

Jan 30, 2013 11:03am

The U.S. economy unexpectedly took a back step in the final quarter of 2012.  The  Commerce Department announced this morning that the U.S. gross domestic product, the sum of  all goods and services produced  in the country, decreased by an annual rate of 0.1 percent in the final quarter of 2012, the first time the economy has contracted since the second quarter of 2009.

The decline from the third quarter is an “advance” estimate and will be revised on Feb. 28. In the third quarter, real GDP increased 3.1 percent.

The Dow Jones industrial average opened down in New York trading by about 0.08 percent to 13,943. This followed an optimistic day for investors on Tuesday, which led led them to hope for the average to reach 14,000.

The Nasdaq index was up about 0.08 percent to 3,156.

The Commerce Department’s Bureau of Economic Analysis said the decrease in the last three months of last year reflected a fall in federal government spending, private inventory investment, exports and state and local government spending.

“If you look at that headline number, you say, Oh, contraction: Boy, we’re on the cusp of recession,  but that’s really a misleading story and as you look at the underlying details, it’s still very much consistent with an economy that continues to regain its footing,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank.

Riccadonna says the decline could be largely attributed to one-time factors.

“Inventories alone subtracted about 1.3  percent off  the growth rate, then also, there was a sharp slowdown in government spending on defense, and that subtracted another 1.3 percent,” she said.

Brian Hamilton, chairman of financial information company Sageworks, said preliminary estimates suggest that 2012 was a mixed bag for private businesses as “profit margins rose and sales growth was strong, but the rate of sales growth slowed down significantly from 2011.”

While consumer spending accounts for about 70 percent of U.S. economic activity, 27 million private companies drive 50 percent of GDP and 65 percent of new job creation, Hamilton said.

“This slowdown may have been reflected in the disappointing GDP growth in the fourth quarter,” Hamilton said.

In a White House blog post, Alan B. Krueger, chairman of the White House’s Council of Economic Advisers, said the first quarterly drop in real GDP in three and a half years took place “amid signs that Hurricane Sandy disrupted economic activity and federal defense spending declined precipitously, likely due to uncertainty stemming from the sequester.”

 ABC News’ Richard Davies and Zunaira Zaki contributed to this report.

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