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US economy shrinks for first time since 2009

The unexpected turndown in the fourth quarter of 2012 shows the US economy is entering the new year with no momentum.
Last Modified: 30 Jan 2013 22:06

The US economy unexpectedly contracted in the fourth quarter of 2012, suffering its first decline since the 2007 to 2009 recession as businesses scaled back on restocking and government spending plunged.

Gross domestic product fell at a 0.1 percent annual rate after growing at a 3.1 percent in the third quarter of 2012, the Commerce Department said on Wednesday.

That was the worst performance since the second quarter of 2009, when the recession ended, and showed the economy entering the new year with no momentum. 

Economists were expecting a 1.1 percent growth.

For the entire 2012, however, the economy expanded a modest 2.2 percent, a gain from 1.8 percent in 2011, the Commerce Department said.

"The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending," the department said.

It stressed that the first estimate of GDP growth is based on incomplete data and is often revised.

US stock index futures pointed to a slightly weaker open following news of an unexpected contraction in fourth-quarter economic activity.

However, a read on private sector employment topped forecasts, with the ADP National Employment report showing 192,000 jobs added in January, higher than the 165,000 expectation.

"This is one chink in the armor of the recent better-than-expected economic indicators. This will make people start to get wary," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

"If it turns out Sandy and the fiscal cliff were the reasons for (the contraction), people will shrug it off," Kaufman said.

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