US Economy Shrinks For The First Time Since Recession

The US economy shrank for the first time since the 2009 recession.

The economy went down unexpectedly from October through December for the first time since the recession in 2009, hurt by the biggest cut in defense spending in 40 years, reports The Huffington Post. Fewer exports and slow growth in company stockpiles apparently contributed to this as well. The drop contrasts stronger consumer spending overall, as well as increased business investment.

The Commerce Department reported Wednesday that the economy shrank at an annual rate of 0.1 percent in the fourth quarter, an unexpected drop to many industry analysts. The July-September quarter showed 3.1 percent growth.

Still, economists say the GDP drop isn’t as bad as it looks. One-time factors primarily contributed to the contraction: Government spending cuts and slower inventory growth subtracted 2.6 percentage points from GDP.

“Frankly, this is the best-looking contraction in US GDP you’ll ever see,” said Paul Ashworth, an economist at Capital Economics. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”

However, the reported drop has some worried about the economy’s strength as we head into 2013. Deep automatic spending cuts will add to the problem if Congress fails to reach another fiscal cliff deal in March, reports The AP.

Looking at all of 2012, the economy expanded 2.2 percent, better that 2011’s growth (1.8 percent).

Possible factors contributing to the drop include European recession, slower-than-expected growth in China, and Superstorm Sandy.

Do you think that the US economy will bounce back, or is the drop a sign of things to come?