US economy shrinks 0.1 pct., 1st time in 3 ½ years

[elleng]

39. 'Despite the overall contraction,

there was underlying data in the report suggesting the economy is not on the brink of a recession or an extended slump. Residential investment jumped 15.3 percent, a sign that the housing sector continues to recover, for one. Similarly, investment in equipment and software by businesses rose 12.4 percent, an indicator that companies are still spending. Although economists expected output to decline substantially from the 3.1 percent annual growth rate recorded in the third quarter, the negative number still caught Wall Street off-guard. It was the weakest economic report since the second quarter of 2009. . .

The 22.2 percent drop in military spending – the sharpest quarterly drop in more than four decades – along with the drop in inventories and exports overwhelmed more positive indicators in the private sector, he said.

For example, final sales to private domestic purchasers, which strips out government spending as well as trade and inventories, rose by 2.8 percent. “Consumers and businesses kept spending at a pretty steady pace,” Mr. Feroli said. “There was a lot of noise that moved the headline around.” For the entire year, the economy grew by 2.2 percent, a slight improvement from the 1.8 percent annual rate in 2011. . .

The compromise between President Obama and Congress earlier this month allowed a temporary cut in Social Security taxes to expire, which is expected to crimp growth in the first quarter. The change will cost a worker earning $50,000 a year an extra $1,000 annually.

Indeed, a consumer confidence survey released Tuesday by the Conference Board showed a sharp downturn in January, which economists attributed in part to financial anxiety arising from the reduction in take-home pay.'

http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?hpw