Jan. 30 - A 15 percent drop in federal government spending leads the U.S. economy to its first contraction since the 2007-09 recession. Conway G. Gittens reports.
The Daily Digit today is 15%. U.S. federal government spending plunged 15% in the fourth quarter of 2012, and vastly contributed to the first contraction in the U.S. economy since the 2007-09 recession. A massive cutback in defense spending was the biggest culprit - suffering its deepest plunge since the 1970s. Other points of weakness: businesses scaled back on restocking, exports were down due to a recession in Europe and a cooling Chinese economy, storm and strike-related port disruptions were also factors. Altogether, U.S. gross domestic product fell at a 0.1% annual rate after growing at a 3.1% clip in the third quarter, the Commerce Department said on Wednesday. That's the worst performance in three-and-a-half years, explains Reuters Correspondent Jason Lange. (SOUNDBITE) JASON LANGE, REUTERS CORRESPONDENT, (ENGLISH) SAYING: Well, the Q4 GDP number really took a lot of people by surprise, and it shows the economy is still in quite a fragile state. It's really unfortunate because it comes at a time when Congress is contemplating more fiscal tightening. That could slow economic growth even further. Now that said, the details of the report showed that consumer spending and business investment were actually quite robust, and a lot of the drag came from more volatile components like defense spending and business inventories. So it's probably too soon to say that this raises the risk of recession but it keeps pressure on the Fed to leave its easy money policy in place. The economy needs to grow more than 3% over a sustained period for things to get better and force unemployment lower, say economists. In the meantime, U.S. growth has struggled to hold above a 2% pace.