GDP Shows Surprise Drop for US in Fourth Quarter
Published: Wednesday, 30 Jan 2013 | 8:11 AM ET
The U.S. economy posted a stunning drop of 0.1 percent in the fourth quarter, defying expectations for slow growth and possibly providing incentive for more Federal Reserve stimulus.
The economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That’s a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.
The surprise contraction could raise fears about the economy’s ability to handle tax increases that took effect in January and looming spending cuts.
Still, the weakness may be because of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.
And those volatile categories offset faster growth in consumer spending, business investment and housing — the economy’s core drivers of growth.
Another positive aspect of the report: For all of 2012, the economy expanded 2.2 percent, better than 2011’s growth of 1.8 percent.
The economy may stay weak at the start of the year because Americans are coming to grips with an increase in Social Security taxes that has left them with less take-home pay.
Subpar growth has held back hiring. The economy has created about 150,000 jobs a month, on average, for the past two years. That’s barely enough to reduce the unemployment rate, which has been 7.8 percent for the past two months.
Economists forecast that unemployment stayed at the still-high rate again this month. The government releases the January jobs report Friday.
The slower growth in stockpiles comes after a big jump in the third quarter. Companies frequently cut back on inventories if they anticipate a slowdown in sales. Slower inventory growth means factories likely produced less.
Heavy equipment maker Caterpillar, Inc. said this week that it reduced its inventories by $2 billion in the fourth quarter as global sales declined from a year earlier.
The biggest question going forward is how consumers react to the expiration of a Social Security tax cut. Congress and the White House allowed the temporary tax cut to expire in January, but reached a deal to keep income taxes from rising on most Americans.
The tax increase will lower take home pay this year by about 2 percent. That means a household earning $50,000 a year will have about $1,000 less to spend. A household with two high-paid workers will have up to $4,500 less.
Already, a key measure of consumer confidence plummeted this month after Americans noticed the reduction in their paychecks, the Conference Board reported Tuesday.
Economists expected the first reading on gross domestic product to show growth of 1 percent, down from the third quarter’s reading of 3.1 percent.
Obama axes Jobs Council
By Dave Boyer
The Washington Times
Thursday, January 31, 2013
- ** FILE ** General Electric’s Jeffrey Immelt looks on as President Obama …
With more than 12 million Americans still out of work, President Obama has decided to shut down his Jobs Council.
The White House announced Thursday that Mr. Obama would not extend authorization for the council, which he created two years ago. Its authority expired Thursday, a day after the government reported that the economy contracted in the fourth quarter of 2012.
White House press secretary Jay Carney said Mr. Obama never intended the council to go beyond its original two-year mandate. He said the administration would “launch a new effort” to encourage business leaders to create more jobs.
Congressional Republicans said the petering out of the ineffective panel was typical of Mr. Obama’s weak record on job creation.
“To understand the abysmal nature of our economic recovery, look no further than the president’s disinterest in learning lessons from actual job creators,” said Brendan Buck, spokesman for House Speaker John A. Boehner, Ohio Republican. “Whether ignoring the group or rejecting its recommendations, the president treated his Jobs Council as more of a nuisance than a vehicle to spur job creation.”
Mr. Obama filled the panel with economists and business leaders such as General Electric CEO Jeffrey Immelt, with the intention of finding new ways to work with the business community to create jobs. But the councilinstead became a symbol of the administration’s inability to reduce unemployment significantly, and the group met in full only four times over two years, most recently in February 2012.
The nation’s unemployment has dropped from 9 percent to 7.8 percent since Mr. Obama formed the council, but there are still about 12.2 million people without jobs, with millions more either underemployed or leaving the labor force entirely.