Don't worry too much about the growth rate

Is the economic contraction that may or may not have happened in the final quarter of 2012 a fluke?

On the one hand, Defense Department budget reductions accounted for approximately 1.5 percent of the total. This was planned and foreseeable; the Pentagon's fiscal imprint shrunk by more than 20 percent relative to the third quarter's rate. (We're talking about rates here, not static numbers). There's no turning back from defense reductions. Government is very big. And even (relatively) small real dollar decreases in the defense budget can affect the GDP quite profoundly. This is a taste of what might happen if the House and Senate fail to agree on a budget and deficit blueprint and the sequester kicks in. Is your appetite whet?

On the other hand, private sector job growth increased by just under 200,000 jobs. A business inventory glut accounted for the second large chunk of the decline; inventories were big in the third quarter, perhaps too big, and the growth rate was slashed appropriately in the fourth quarter. (They still rose $20 billion.) The government says that consumer spending also rose at a good rate.

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The tenth of a percentage point that separates growth from decline may well be revised in February.

If you take out the Pentagon growth rate shrinkage and flatten out inventory growth a bit, the growth rate would actually have been a bit north of 2 percent.

Politically, a decline is a decline is a decline. How it changes, or if it changes, the politics of the next few weeks will be a function of whether Americans and businesses see it as a blip or a bigger bloop.