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Home > Investments > Economic Indicators

US economy contracted by 0.1% in fourth quarter

Decline in government spending and private inventory investment causes shock contraction.

By Matthew Jeynes | Published Jan 30, 2013 | comments

The US economy shrank by 0.1 per cent in the final quarter of 2012, the first quarter of decline since the second quarter of 2009.

The consensus prediction from 93 economists surveyed by Reuters had been that the US economy could grow by 1.1 per cent in the final three months of 2012 after the economy had grown by 3.1 per cent in the previous quarter.

The GDP data, compiled by the US Bureau of Economic Research, showed that the contraction was due to a decrease in government spending, a decline in exports and a downturn in private inventory investment.

Gemma Godfrey, head of investment strategy for wealth manager Brooks Macdonald, said the US GDP figures showed that “market elation has been too early and support may prove fragile”.

“As investors dismiss the economic contraction to focus on the resilience of consumption, they miss the risk that this will come under pressure over the coming months as fiscal cliff measures come into play,” she said.

However, Andrew Goldberg, global market strategist at JPMorgan Asset Management, said that the details of the GDP report “were not as weak, or as shocking, as the headline numbers suggest”.

Mr Goldberg said a lot of the weakness was concentrated in slower inventory growth, which had had a strong third quarter, while there were strong gains in housing and consumption and that preliminary data for the start of this year suggests that growth will be closer to 2 per cent in the first quarter of 2013.

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