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

[coalition_unwilling]

Source: Yahoo

WASHINGTON (AP) -- The U.S. 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.



Read more: http://finance.yahoo.com/news/us-economy-shrinks-0-1-133115372.html

---

On a positive note , GDP grew annually at a 2.2% rate.

Most economists define a "recession" as 2 or more successive quarters of negative growth in GDP. This quarter's -0.1% thus starts the counter ticking. Will the Rape-publi-scum Congress deliver the coup de grace in Q1 2013?

[Crowman1979]

1. "hurt by the biggest cut in defense spending in 40 years"

How the hell is that bad? IMO, this actually helps the economy since there are less people dying or ending up in the hospital from combat wounds.

[coalition_unwilling]

2. The national GDP shrank (did not grow). Most economists consider that a proxy

for a recession (when unemployment and misery generally tend to rise in tandem).

The cuts in defense spending are probably cuts in capital expenditures (fewer actual goods purchased and produced).

BTW, link to source doc from Bureau of Economic Analysis is here: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

[Roland99]

3. Also means a lot fewer highly (over) paid defense contractors making bank on egregious profit margin

[Crowman1979]

4. +1

[Jeff In Milwaukee]

10. Republican have this odd blind spot...

Government spending doesn't "create" jobs, unless the government spending is on the military, in which case we can't cut the defense budget because it will cost people their jobs.

Defense spending, just like spending in every other area of government, does really create jobs. But most research indicates that spending on defense creates fewer jobs that just about every other kind of spending.

[Shivering Jemmy]

51. Well it creates my job

so I do worry a bit about it.

[TomCADem]

14. Hey, Boehner and Ryan now support those cuts!

If they want to proceed and kill this hostage, should we stop them?

[pampango]

15. Great point! If one favors a decrease in defense spending, as most of us do, this is good news. If

it means a 'bad' quarterly number for the economists to digest, so be it.

[Romulox]

19. No. A contraction of the economy is not "good news".

[pampango]

25. If the non-defense segment of the economy expanded and the defense segment contracted, that is good

news.

[coalition_unwilling]

32. Net-net: US GDP contracted (shrank) by 0.1%. That is hardly

anyone's definition of 'good news' (except maybe decadent and parasitical 1%ers who get their incomes from interest on bonds).

[pampango]

34. It meets my definition of 'good news', if the alternative is continuing high defense spending

to prop up the GDP to make Wall Street (those 1%ers who get their incomes from stocks and stock options) happy and so that we do not occasionally have a tiny (0.1% - the smallest percentage that is statistically possible the way these things are figured) decline in overall GDP.

If we are going to shift the economy away from its fixation with military spending, there will be quarters in which the decline in said spending will be greater than the increase non-defense spending. It would be nice if it were possible to calibrate the path of declining defense spending precisely enough so that it never a quarter in which it was greater than the increase in the productive part of the economy, but I don't think that is possible.

[JDPriestly]

38. But the shrinking is necessary if other areas of the economy are to grow, become

more innovative and pick up the slack.

California needs faster rail to link Los Angeles, San Diego, Sacramento and San Francisco -- huge population areas -- by some environmentally friendlier means than air traffic. But so far we have not even bought the land for the new rail line we need.

We need government spending on things other than the military. Perhaps this "downturn" will actually be an upturn in areas that are not military. That would be great.

[JDPriestly]

36. I agree. The numbers don't tell the whole story.

We have to move our economy from so much military which is actually government spending to real production which is innovation in areas other than military, services, etc.

Education has also been cut in recent years. In fact, all state government spending seems to have been cut. And that is bound to slow the economy.

[lib2DaBone]

5. Obama just OKed $365 million in aid for Syria....

For most Americans the recession never ended. (Everyone knows that they massage the numbers any way they please.)

Last night on Nightly News.. Brian Wilson reported that a $365 million transfer to Syria was complete.

Seems the govt ALWAYS has billions for Afghanistan, Syria, Yemen, Saudi Arabia.... but in order to pay for this we must have severe austerity... make sure Grandma eats cat food.

[reformist2]

6. There's a strong tendency to dismiss this as a one-off. Don't.

[coalition_unwilling]

7. This is what happens when demagogues and charlatans control

the House. There is no reason to suspect that conditions will improve and I put our chances at an actual recession now (2 or more successive quarters of negative GDP growth) at about 50-50.

Obama needs to start campaigning for the 2014 mid-terms TODAY! He can use these numbers to hammer the Rape-publi-scum over the head mercilessly. (Rather, he could were he Harry S. Truman.)

[reformist2]

9. The economy is still on life support, and any cuts in gov't spending are going to hurt.

The fact that it was a drop in defense spending that turned the GDP figure negative should wake up more than a few Repugs to the connection between gov't spending and economic growth...

[Swede Atlanta]

8. I would be interested in knowing.....

how much of this could be attributable to the uncertainty going into the election and the impact of Sandy. Sandy will drive re-building which should drive demand and employment.

[Zorro]

11. The sequester will drive the economy into the ditch

[MannyGoldstein]

13. All of us need to sacrifice

But only some of us need to sleep in the street.

[L0oniX]

18. ...

[KoKo]

20. Graphic....

[MannyGoldstein]

12. When Krugman, Stiglitz, and reality-based economists are derided by Democratic leadership...

this is what happens. No surprise.

We need to end this depression now - not commit shared sacrifice against the 99%.

[coalition_unwilling]

24. Yeah, the economist in me takes issue with the term 'depression,' as that

typically betokens a contraction in GDP of > 20%.

That lexicographical clarification aside, the time has come for a fiscal stimulus package to put Americans back to work.

[MannyGoldstein]

27. 14,000 posts! Congratulations! nt

[madrchsod]

16. econ 101....

military spending is a net drag on the economy. for every dollar spent on the public good returns a minimum of 5 dollars. for every dollar invested in the military returns 0 dollars.

remember what ike said about the military-industrial complex.

[nolabels]

21. There is good reason to keep miltary spending high

Without it people would be able to realize that is easier to help someone than it is to fight with them.

That would blow the whole capitalist idea of how economy should run up in smoke, thus making those billionaires really frightened

[coalition_unwilling]

23. Actually, Macroeconomics 101 . . . which posits that cuts to

government spending often result in contraction to GDP, not that the charlatans and demagogues in the Rape-publi-scum Party will ever acknowledge that.

[JDPriestly]

40. Agreed. All that money invested in all that production which either kills people including

many innocent people (mostly innocent people) or rusts in a warehouse or sits somewhere in the desert waiting to be used . . . .

What a waste of human effort, time and money. We need a strong defense. But we do not need stockpiles of junk, and we do not need to strike out and kill before seeking other solutions.

[L0oniX]

17. 0.1 % ....OMG what will we do???

[coalition_unwilling]

22. Right now, the unemployment rate in California is about 10%. With

a contracting economy like these Q4 numbers suggest, there is small hope that the unemployment situation will significantly brighten any time soon.

So your derision seems somewhat unbecoming to a so-called progressive discussion board.

Or am I missing something?

[JDPriestly]

41. So, why aren't we building fast rail and installing solar panels on more houses in Southern

California?

Those investments would pay off because our energy and transportation, two basic costs of most of human economic activity, would be cheaper in the long run. Plus our environment would be healthier and therefore our healthcare costs my go down.

Think about the future, not just the next ten minutes or even the next ten years.

[maddogesq]

26. My take, FWIW.

I believe this is a "one off," as long as the dip shit House leaders play nice regarding the sequester. If you look at most of the other economic factors over time, you will see that we can make up the economics costs of the defense cuts already made in a very short time.

The rub is that Congress Gerrymander is still the hostage taker. Like Krugman says, the economic tank is full of fuel, and all we need to is step on the accelerator. Take the money we save from defense cuts and do some FDR, toot sweet.

Am I making this too simple?

[coalition_unwilling]

28. It may be a 'one off' but when combined with December's precipitous

decline in consumer confidence, hardly betokens an economy in full vigor.

I read it as futher signs of a dead-cat bounce. Not quite a recession (much less a depression) but not healthy either and at risk that the next shock (9-11 or mortgage bust variety) will send it into a death spiral.

[maddogesq]

37. Agreed that we can do better.

However, having just attended the Detroit auto show, I had this feeling that things are ripe for acceleration if we just listen to the Keyne types and start a tit for tat shift of funds from defense to public works.

Consumer Confidence is only one fact among many.

Bottom line: Creating jobs instenad of short-term debt fixes is the name of the game. The debt will take care of itself in some ways as we get people back to work. Getting that U6 well under 10 percent should be our primary goal.

[JDPriestly]

42. I strongly agree with this statement:

The debt will take care of itself in some ways as we get people back to work. Getting that U6 well under 10 percent should be our primary goal.

[Dawson Leery]

29. The economy grew 1.2%.

http://economictimes.indiatimes.com/news/international-business/slow-us-economic-growth-in-q4-may-hide-strength/articleshow/18253153.cms

This is an adjustment to the end of the payroll tax and military spending wind down.

The economy is expected to pick up in the second half of the year.

[coalition_unwilling]

48. Your headline is somewhat misleading (or has the potential to be), as U.S. GDP

grew 2.2% in 2012 as a whole. However, it contracted by 0.1% in Q4 of 2012. And it's that trend that's worrisome.

The article to which you link further muddies the water by saying that the pace of growth slowed from 3.1% in Q3 to 1.2% in Q4. Again, a worrisome trend.

Most economists had predicted that Q4 GDP would grow by 1%. So a contraction of 0.1%, while negligible as a nominal figure, is a huge deviation from the consensus of economists.

This is not good news and no doffing of rose-colored glasses can make it so.

[brett_jv]

30. I believe that the global historic peak in oil production is at the root of our economic woes ...

Our economy cannot run well on 80-95 dollar a barrel oil. It's really that simple folks.

What we need to do is cut our military spending in, like, HALF, and reinvest into solar, wind, geothermal, electric cars, getting our railways and waterways back into good working order (and yes, continue to develop our oil shale resources), and just generally engage in a Manhattan Project to try to become energy independent in the greenest way possible.

If we didn't have to worry about our foreign oil supplies so much (and the pissing off of people on the other side of the world that goes with it), I'd be we could really easily could cut our military budget in half ... and still end up twice as safe.

Such a project would also put millions to work ... although a lot of military people would lose their jobs in the process, perhaps they could be retrained to work in our new green economy.

But no ... that will never happen as long as the oil companies are funding our politicians campaigns.

[coalition_unwilling]

31. While I feel inclined to agree with you, I also must point out that the

U.S. GDP did not contract due to high oil prices. It contracted b/c of cuts in spending ('austerity'), specifically government spending.

In short, the Q4 numbers fully vindicate Keynes and his later advocates like Krugman and Stiglitz and refute entirely Reaganomics and supply-side bullshit.

[brett_jv]

35. Respectfully, I posit that anytime you look at economics ...

It's going to be subjective in nature. Just because someone says a contraction is "due to cuts in military spending", doesn't make that the iron-clad "truth" and entirety of the situation. Forgive me for stating the obvious, but energy costs have a ripple effect throughout the economy that is difficult to detect and quantify due to it's breadth and scope.

I really think that economists in general live way too much in the world of dollars and cents, and don't look nearly closely enough at physics, chemistry, and science in general. The main problem here is that the net available energy to our society (and the world at large) is falling due to falling EROEI in our primary source of energy, i.e. petroleum. 50 years ago, it took energy of 1 barrel of oil for every 100 that were extracted. Now, that number is falling below 20 worldwide, and for some sources like oil from shale, the numbers are like 6-13, last I checked.

Abundances of net available energy is at the very core of all economic growth, and conversely, there is economic stagnation if the net availability of energy goes down. And unfortunately there's no realistic substitute for the abundance in NET energy available from fossil fuels. We can do all the things I mentioned in my post above, but it's not going to provide the abundances in net energy we'd need to continue to 'grow' our economy in the manner we've become accustomed to, and developed our expectations around.

Ergo, I believe that overall we are at the beginning of an inexorable world-wide contraction in 'growth'. There may be occasional quarters where things show an upturn here in the early days of the peak, as we're still in the 'bumpy plateau' phase of the curve.


But the era of unending economic growth, fueled by an abundance of cheap energy in the form of easily extracted fossil fuels, is coming to a close, and people are going to need to start adjusting their expectations accordingly.

Chemistry and physics trump 'economics'

[JDPriestly]

44. Agreed. I remember my dad pulling into the filling station and paying 25 cents a gallon.

Although I was just a small kid, I could ask 50 cents per hour for babysitting. In just one hour, I could have bought 2 gallons.

Nowadays, no one would trust a child the age I was to babysit, but if they did, they probably would not pay her enough to buy 2 gallons of gas in an hour.

Back then, our economy was booming -- in the late 1940s and early 1950s.

The Viet Nam War changed so much. We wasted so much of our prosperity and so many of our hopes on that war. That is what started us down this dark, dank, ever-narrowing path to economic disaster.

[JDPriestly]

43. Agreed.

[LeftInTX]

33. Article also sites return of "payroll tax"

Hopefully, consumer response is temporary.

[JDPriestly]

45. The increased payroll tax will go directly into the Social Security Trust Fund and be loaned to the

government. I am not an economist, but I suppose that it will help keep interest rates low as there is more money available to the government to borrow from the Trust Fund and the government will not have to raise interest rates in order to attract bond purchasers other than the Trust Fund.

I'm not sure it's that simple, but that is the way my mind puts it together.

[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

[JDPriestly]

46. The slight increase in consumer spending suggests to me that the private sector is less

bogged down by personal debt than it was a few years ago. This slight slow-down may become a time of bargain-hunting for consumers who have been re-using old stuff and hesitating to buy.

As for the lack of consumer enthusiasm, I noted that the red this year in most women's clothing stores wasn't red at all but a kind of orange. Frankly, I thought it was downright ugly. It may be that clothing sales were slowed because a lot of other people reacted as I did. The fashion industry needs some new concepts.

[elleng]

47. You may be right.

I wouldn't know, personally. I rarely shop for 'new' stuff, surely not clothing; always 2d-hand. IMO, the 'fashion' industry has needed new concepts for a LONG time.

I suspect 'fiscal cliff' b.s., debt-ceiling, Sandy, military sequestration were felt, and now that taxes are slightly up, things will continue to grow very slowly, 'thanks' to the nutjobs in congress.

Just returned from Post Office. A unit which has, in the past, employed 4-5 is down to 1, and her co-worker joined her to help out today even tho she has just retired. People were annoyed and becoming angry. I announced a couple of times that it was due to congressional action, and we all should complain to them. (Don't know how much this would help in this district, which is already represented by Dems: Chris Van Hollen, Mikulski and Cardin.)

[pampango]

49. Krugman: Most analysts are, rightly, shrugging off the surprise report of an actual decline in 4th

quarter GDP.

Most analysts are, rightly, shrugging off the surprise report of an actual decline in 4th quarter GDP. It will probably be revised away, and in any case it’s the result of one-off factors: a drop in inventories and a quirky sharp decline in defense spending.

Still, the report does highlight the role that shrinking government purchases of goods and services are playing in holding the economy back. And yes, I mean shrinking, not just growing more slowly than I’d like. Transfer payments like Medicare and Social Security are rising (although unemployment benefits are falling), but government purchases of stuff — mostly at the state and local level, where the stuff in question includes hiring schoolteachers — has been in fairly rapid decline.

Here’s a comparison, using the BEA numbers, of the relevant numbers in the current business cycle and during the Bush-era recession and aftermath:



So fiscal austerity is the difference between where we are now and an unemployment rate not much above 6 percent. It’s a policy disaster.

http://krugman.blogs.nytimes.com/2013/02/01/our-incredible-shrinking-government/

[coalition_unwilling]

50. Thanks for posting. BLS just posted January 2013 payroll #s, and unemployment

rate increased from 7.8 to 7.9% in January.

A fitting end to the final month of the 2010 "Jobs, jobs, jobs" Rape-publi-scum Congress, those fucking charlatans and demagogues.