Economic contraction no reason to panic

The performance in the fourth quarter wasn't good, to be sure. But consumer and business spending rose, and economists say they expect a rebound in the current quarter.

By Jonathan Berr Jan 30, 2013 2:55PM
Investors digesting Wednesday's surprising news that the U.S. economy contracted in the fourth quarter should remember the words that the late Douglas Adams said were inscribed on the "Hitchhiker's Guide to the Galaxy" in large, friendly letters: "Don't Panic."

That's good advice when an alien construction crew demolishes your planet to make way for an inter-planetary highway and good advice in these uncertain economic times.
While the country's gross domestic product did contract 0.1% from the third to the fourth quarter in the wake of Superstorm Sandy, the news wasn't all bad. Consumer spending rose 2.6%, an improvement from a gain of 1.6%. Spending by businesses increased by 8.4%, rebounding from a decline of 1.8%. 
Exports, however, posted a disappointing 5.7% annual rate of decline, though that should improve as economies around the world rebound. Defense spending plunged at a 22% rate, which experts say is a temporary blip.Image: Arrow Down (ImageSource/PictureQuest)  

Though some may blame worries about the fiscal cliff for the economy's disappointing performance, IHS Global Insight chief U.S. economist Nigel Gault isn't so sure.

"The incoming data points to continued growth, and we expect GDP growth to rebound to around 2% in the first quarter," he said in a press release.
 
Stocks reacted negatively to the GDP figures, which were worse than economists forecasted and marked the first contraction since 2009. Luckily for investors, related data from ADP showed U.S. companies added 192,000 jobs in January, beating expectations of a gain of 165,000, according to Bloomberg.

--Follow Jonathan Berr on Twitter @jdberr.

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Tags: Economy
4Comments
Jan 30, 2013 3:46PM
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I keep hoping the economy will improve, in fact, I've been hoping for about four years now.  The jobs that  are being created, if they're being created, are just low wage service jobs.  How are these kids going to pay off their three degree college educations and cell phone bills working at Starbucks?   I think these articles are just smoke and mirrors...  What in the world is going to happen when Obama care kicks in?
Jan 30, 2013 6:08PM
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Hey Buddyboy_4, if those degrees were in English, Art, and Geology, they probably aren't finding a job now.  But they wouldn't have found a job ten years ago either.  My daughter had no problem finding an engineering job.
Jan 30, 2013 7:45PM
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To Buddyboy_4

There are good jobs for the PROPERLY educated. I see it as three problems as I did in the late 90's when my children were in college.

1) The kids today are not thinking seriously about the fact that they are BUYING a degree and what they are actually spending their future money on.

2.) The colleges will sell any degree to make money. They could care less that the student will need  that degree to support them through life.

3)   College loans are being passed out like free candy and the student isn’t living in reality as to what they are subjecting themselves to.


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