Economic contraction no reason to panic

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%. 

• Is the recovery over?

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.  

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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