January 31, 2013

U.S. economy takes dip, but don't blame consumers

A sharp decline in government spending overshadows gains in the private sector to end 2012.

By YLAN Q. MUI The Washington Post

(Continued from page 1)

For the entire year, GDP grew at a 2.2 percent rate, a faster pace than in 2011.

"The good thing about this recovery is that it keeps on keeping on, and the bad thing . . . is that it doesn't take off," said Justin Wolfers, a professor of economics and public policy at the University of Michigan.

The country is entering 2013 on weaker footing than expected, making it more vulnerable to the whims of Washington. Nathaniel Karp, chief economist for BBVA Compass, said it is impossible to isolate the consequences of continuing cuts in federal spending. Eventually, they will spill over into the rest of the economy.

"Hopefully this is happening because you're adjusting your long-term financial stability," he said.

But, he added, "that is a price you have to pay now."

Federal Reserve officials Wednesday alluded to the downbeat GDP report as they wrapped up their two-day meeting to set monetary policy. The Fed said economic activity "paused" in recent months but cited weather and "other transitory factors" as the main culprits.

It maintained its pledge to help stimulate the economy by purchasing $85 billion in long-term securities each month and keeping its target interest rate at a historic low.

Stock markets seemed to shrug off the news that the economy contracted but began falling after the Fed released its comments. The major U.S. indexes ended the day down more than 0.3 percent.

Economists also cautioned that Wednesday's report was the government's first crack at measuring economic activity in the fourth quarter and that the data are often revised.

An updated report is slated for release Feb. 28, and many economists predicted it will be more upbeat.

But Steve Ricchiuto, chief economist at brokerage firm Mizuho Securities, was less optimistic.

"The preliminary number is negative," he said. " . . . But the recovery is supposedly gaining momentum. Sorry, I don't see it."

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