The miserable GDP report: Is the economy in trouble again?

Last quarter, the economy contracted for the first time since the Great Recession ended. Still, the headline number may belie strong fundamentals

A woman walks by destroyed homes and businesses in Queens, New York: Hurricane Sandy's economic damage played havoc with the national GDP.
(Image credit: Spencer Platt/Getty Images)

The U.S. economy stumbled badly in the fourth quarter of 2012, according to the Commerce Department, which reported on Wednesday that GDP shrank at an annual rate of 0.1 percent, compared with 3.1 percent growth in the third quarter. It is the first time since the second quarter of 2009 — when President Obama was just starting his first term, and the labor market was shedding hundreds of thousands of jobs per month — that the economy has contracted. By all accounts, the miserable report came as a shock to economists, with most predicting at least some growth in the fourth quarter.

What happened? The main drag on the economy was a huge dip — 15 percent — in government spending, led by the military, which cut expenditures by 22 percent. According to The Wall Street Journal, "the decline in federal spending was the largest drop since 1973." Exports were also down, a trend that was attributed to slowing growth in China and an economic malaise in Europe. Business inventories fell, which could be an indication that companies are anticipating weak sales in the future.

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Ryu Spaeth

Ryu Spaeth is deputy editor at TheWeek.com. Follow him on Twitter.