Let the happy talk begin!
The economy unexpectedly contracted in the fourth quarter, but analysts said there was no reason for panic given that consumer spending and business investment picked up.
The news that the government thinks the economy shrank in the fourth quarter looks like a disaster -- but it's not.
The Commerce Department reported Wednesday that the economy shrank at an annual rate of 0.1% in the final three months of 2012 — but that number was dominated by two temporary factors, as the Pentagon slashed spending 22% and businesses sharply slowed the rate of inventory accumulation.
Military Keynesianism works! Film at 11....
Economists stressed that the key factors that dragged on GDP in the fourth quarter could prove short-lived, even though the economy faces other threats in 2013.
"Frankly, this is the best-looking contraction in U.S. GDP you'll ever see," Paul Ashworth, an economist at Capital Economics, said in a research note. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."
I realize the right doesn't want to hear or believe this, but when Washington spends far less -- in this case, the cuts focused on defense -- it takes capital out of the economy and undermines growth. It is, as a practical matter, a form austerity, which hits the brakes on the economy. This is Economics 101 and yet Republicans continue to insist that it is the only policy they really care about.
It's something to keep in mind as the Beltway's preoccupation with debt reduction, not the recovery, continues unabated. It's also a reminder that the automatic sequestration cuts may very well push the nation closer to a recession this year.
Classic blame-shifting! Republicans.... "The Beltway"... And somehow the enitire executive branch, along with The Greatest Orator of Our Time, have somehow been rendered invisible!
“We shouldn’t be shocked if we technically get a recession here,” John Mauldin said this morning on the Markets Hub, in the wake of this morning’s GDP report that showed the economy actually contracted in the fourth quarter.
To Mauldin, the report wasn’t a surprise. He pointed out that the Obama administration ratcheted up defense spending in the third-quarter, and what was reflected in the fourth-quarter was merely the other side of that spending. He would take an average of those quarters (although for the year growth came in at merely 1.5%, also a weak number).
“We’re in a muddle-through world,” he said. Mauldin thinks the fourth-quarter’s numbers in fact will be revised lower, given all the uncertainty and anxiety in December over the fiscal-cliff debate. The first-quarter isn’t looking much brighter, he said, which is why he thinks a recession is on the table. “It’s gonna be flat, sideways,” he said of growth.
A one quarter contraction of economic output doesn’t mean the economy is formally in recession, but it is unusual for such contractions to happen in the middle of economic expansions.
"In the middle of economic expansion." Oh, ha ha ha. What economic expansion?
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Up here in Maine, we have a joke about The Depression: "We've always been depressed!" So I think to a lot of us, these statistics probably mean little change in our every day lives. So, I think we all just need to go about our business, cooking beans, exercising, making our networks as dense as we can. "Who's excited?" I'm not in a posture of existential despair about these numbers, in other words. But the coverage does show the monstrous suckitude of The Beltway and the talking heads.
UPDATE Dean Baker:
There is little evidence in this report to believe that the economy will diverge sharply from a 2.5- 3.0 percent growth path, except for the impact of the deficit reductions that Congress is considering or already put in place. Higher tax collections from the ending of the payroll tax holiday are likely to knock around 0.5 percentage points from growth. The sequester, or whatever cuts are put in place in lieu of the sequester, are likely to have an even larger impact on growth beginning in the second quarter.
UPDATE The Fed:
WASHINGTON — The Federal Reserve, noting that economic growth had “paused” in recent months, said Wednesday that it would continue its efforts to stimulate the economy for as long as it deemed necessary.
The Fed attributed the pause in growth to the impact of Hurricane Sandy and other “transitory factors,” and it said that there were some signs of increased strength in areas including consumer spending and housing.