US Economy Shrinks for First Time in Almost Four Years, But Some Say Report is ‘Encouraging’

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    Despite strong numbers in consumer spending and business investments, the US economy shrank from the October to December 2012 quarter for the first time since 2009.

    Wednesday, the Commerce Department announced that the US economy constricted at an annual rate of 0.1 percent in the fourth quarter, a major decline from the 3.1 percent growth rate during the July-September quarter.

    Economists say the drop is the result of one-time factors, where government spending has been cut and there has been slower growth in inventory.

    With the increase of Social Security taxes leaving workers with less money in their checks, the government making the biggest cut in defense spending in 40 years and a production of fewer exports in 2012, there is cause for concern about the economy’s durability in 2013.

    “Frankly, this is the best-looking contraction in US GDP you’ll ever see,” Capital Economics economist Paul Ashworth said in a note to clients obtained by The Associated Press. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”

    US exports declined the most in four years due to slower growth in China and a European recession. Hurricane Sandy also played a role in the drop due to the closing factories, a disruption in shipping goods and the closing of other stores and businesses.

    The low growth has also halted hiring in new job markets. Economists predict that the unemployment rate will remain high in February even through the economy has created about 150,000 jobs a month.

    This month’s expiration of the Social Security tax cut has consumers questioning how the economy is going to move forward. Income taxes will be expected to rise meaning that if a household was expected to earn $50,000 a year, $1,000 of that salary would disappear.

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