America’s economy: Stumble or worse?

Posted: January 30, 2013 in economy
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AMERICA has lately seemed to levitate above the economic difficulties plaguing other rich countries, from Europe, to Britain, to Japan. This morning’s news, that the American economy shrank at a 0.1% annual pace in the last three months of 2012, may therefore come as a bit of a shock to many. A slowdown from the 3.1% growth notched in the third quarter was expected, but outright contraction was not. The surprise may fuel muttering about the threat of a double-dip recession, but the news is less bad than it seems. Calling a new recession would be premature, for several reasons.First, it is important to note that this is the government’s advance report, which will subsequently be revised several times. Growth in the third quarter was initially reported at just 2.0% before being revised up more than a percentage point. Second, the bad number is driven by a few one-off peculiarities in the data. Federal defence spending shrank at a striking 22% annual pace in the fourth quarter, knocking 1.28 percentage points off of growth. That was mostly (though not entirely) due to typical shifting of spending into the third quarter ahead of the end of the fiscal year in September. (Correspondingly, the 0.64 percentage-point defence contribution to growth in the third quarter was somewhat overstated.) A big change in private inventories also knocked 1.27 percentage points off of growth. …

via Economic Crisis


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