According to official figures, the US economy shrunk in the last quarter of 2012, making it the first time that it has done so since the onset of the 2009 global recession.
According to figures released by the Department of Commerce’s Bureau of Economic Analysis, the US economy shrunk by 0.1 percent in the fourth quarter of last year, offsetting a steady period of growth that had seen the unemployment rate stabilize and hundreds of thousands of jobs added to the economy. But the fourth quarter, while seeing a momentary stimulus with reconstruction in the wake of Superstorm Sandy, was particularly hit by the deadlock on Capitol Hill over the "fiscal cliff," which would have seen wide budget cuts and increased taxation. Of course, the "fiscal cliff" did not come to pass as literal moments before the December 31 deadline, Democrats and Republicans ironed out a deal, with further discussions on the proposed budget cuts to take place over the coming months.
The 0.1 percent drop in the economy came as a surprise to analysts, as it was expected that the economy would see an increase of 1.1 percent in the US economic output and according to a Reuters news agency poll, not a single economist had expected the drop.
Economic growth was noted to have been affected by the 22 percent cut in federal defence spending along with many businesses halving their inventory rebuilding. The two factors combined cut 2.6 percent from the growth rate, but analysts have said that while these two factors have affected the growth rate, positive signs from other sectors mean there may be a silver lining.
Commenting on the figures, Paul Ashworth, economist at Capital Economics, said, “Frankly, this is the best-looking contraction in US [gross domestic product] you'll ever see. The drag from defence spending and inventories is a one-off. The rest of the report is all encouraging."
It was noted that consumer spending, business investment and investment in residences grew during the October to December quarter, with the average growth for the year being 2.2 percent, higher than that of 2011’s at 1.8 percent.
Of course, with this drop, the US Federal Reserve will be expected to provide stimulus to the economy and members of the Federal Open Markets Committee will be looking into the present data to see what can be done and will also be announcing new policies on Wednesday.