Good News and ad News in Today's Report of GDP Contraction

     The bad news is that in the preliminary report at least, the economy contracted for the first time since the end of the 2009 recession. In itself this can only be bad news.

     The U.S. economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

     http://www.huffingtonpost.com/2013/01/30/us-economy-shrinks-gdp_n_2580897.html

     However:

     "Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a combined 2.6 percentage points from GDP."

     "But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, could raise fears about the economy's durability in 2013. That's because deep government spending cuts will automatically slash domestic and defense programs starting in March unless Congress reaches a deal to avert them.

     Indeed, some are calling it a "good-looking contraction."

     "The government spending cuts and slack inventory growth in the fourth quarter offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer."

      "Consumer spending added 1.5 percentage points to GDP, and business investment added 1.1 points – both stronger contributions than in the third quarter."

      "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."

      "For all of 2012, the economy expanded 2.2 percent, better than 2011's growth of 1.8 percent."

      Still with a drop even if it is -fingers crossed-one off items, is this the time we want the deep spending cuts of the sequester? The GOP has been bellyaching loudly for the better part of the year over the military side of these cuts. Since the debt ceiling deal they've been acting very sanguine about them. Part of it I think is a ruse thinking this gives them a bargaining chip. Still, is this the time for playing with a bargaining chip?

    As the White House said today:

    "The White House said that a report showing the economy shrunk in the fourth quarter of 2012 should be a reminder to Congress of the need to act to "avoid self-inflicted wounds to the economy."

    "The Administration continues to urge Congress to move toward a sustainable federal budget in a responsible way that balances revenue and spending, and replaces the sequester, while making critical investments in the economy that promote growth and job creation and protect our most vulnerable citizens," Alan B. Krueger, chairman of the Council of Economic Advisers, wrote in a statement.

     http://www.politico.com/politico44/2013/01/wh-gdp-report-shows-need-for-balanced-approach-155634.html