US economy declines 0.1 percent due to budget cuts

US economy declines 0.1 percent due to budget cuts

Washington : PA : USA | Jan 30, 2013 at 9:22 AM PST
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Vietnam's economy grew an estimated 5.83 percent in the first quarter of 2010

In the fourth quarter of 2012, the US economy unexpectedly declined 0.1 percent, the first such contraction since 2009. The fall was due to spending cuts and slower inventory growth.

This doesn't means declining economy of United States is a signal of another recession. On the first quarter of 2013 businesses will start buying more goods to fill in their shelves.

According to economist Nouriel Roubini, businesses were doing their annual inventory during the last quarter of 2012. The first quarter of the new year they will start to boost their profit and restock their shelves.

"Businesses were selling in the fourth quarter, but not replacing the stuff on the shelves," said Bill Hampel, chief economist with the Credit Union National Association. "When inventories fall in one quarter, they're really likely to rise the next quarter."

Economists expect the US economy to stand out again in the first quarter of this year. There are other factors to consider, such as residential investment increasing by 15.3 percent. And Superstorm Sandy also affected the economy when businesses had to close, delaying some shipping and shutting down retail stores.

"Today's report is a reminder of the importance of the need for Congress to act to avoid self-inflicted wounds to the economy," said Alan Krueger, chairman of the White House Council of Economic Advisers.

The Social Security tax increase will affect Americans' take-home pay by about 2 percent this year. Congress and White House were able to hold on to temporary cut in Social Security taxes to expire in January but prevented income taxes from rising for most Americans.

"Frankly, this is the best-looking contraction in US 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."

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U.S Economy declines
U.S economy rate declines to 0.1pct. due to budget cuts
Mary Grace Keiner is based in Lake Mills, Wisconsin, United States of America, and is an Anchor on Allvoices.
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