Skip to comments.Economy Contracts for First Time in 3½ Years on Defense-Spending Cuts
Posted on 01/30/2013 8:33:09 AM PST by SkyPilot
The U.S. economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.
Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a total of 2.6 percentage points from GDP.
But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, may raise fears about the economy's durability in 2013. That's because deep automatic government spending cuts will cut into domestic and defense programs starting in March unless Congress reaches a deal to avert them.
And Americans are coming to grips with an increase in Social Security taxes that has begun to leave them with less take-home pay.
Still, the government spending cuts and slack inventory growth in the fourth quarter offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer.
Consumer spending added 1.5 percentage points to GDP, and business investment added 1.1 points both stronger contributions than in the third quarter.
"Frankly, this is the best-looking contraction in U.S. GDP you'll ever see," Paul Ashworth, an economist at Capital Economics, said in a note to clients. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."
(Excerpt) Read more at moneynews.com ...
The Sequestration cuts are about to hit, and these cuts are $600 Billion on top of the last $500 Billion cuts that Obama chopped from defense.
Drudge has a headline about the Democrats "spinning" this economic debacle.
Incredible. I now know what it was like to live in Germany in the 1930's. Long live the Führer!
This reminds me of why I think we’re screwed no matter what we do: The nation’s economy now DEPENDS on government spending. And government spending goes to the wages of a LOT of people. If the government were to actually cut spending enough to just balance the budget, the layoffs in government and the private industry that support us would be catastrophic to the point that we would long for the days of the first great depression.
And then, of course, we would be attacked by someone who thought there would never be a better time.
That is one reason I believe this whole thing will end in the greatest war the world has ever seen. Remember, the US is only PART of this mess.
And the chocolate ration has been increased to 20 grams per week.
Ive been with the DoD for 23 years and NEVER seen anything like this. The activity where I work dirctly supports the US Navy and USAF warfighter (aircraft and engines). If we get furlowed it will have a direct impact on Naval and USAF aviation readiness.....no doubt about it.
Sounds like obamas plan is on schedule.
A reduction in proposed increase is not a cut. Or maybe it is when it comes to defense and not welfare. Who knows.
So how come the 85 Billion per month the Fed has/is printing to stimulate the economy did nothing? Where is the money?
You don't know what you are talking about.
The half a trillion (over 10 years) that Obama took from Defense was an actual meat ax. Thousands of Defense jobs were eliminated and weapons upgrades cancelled. I know many of the people who were put out of work.
We have money hand over fist for the un-Constitutional giveaways. The Hurricane Sandy pork bill just spent the entire Fiscal Cliff tax increase.
Where is that in the Constitution? Defense is. Show me where Medicare, Social Security, Food Stamps, and Unemployment are spelled out there?
Defense is the only Federal agency that got cut in real dollars under Obama. Thanks to our brilliant GOP masters, Defense is about to get gutted further.
iirc, 2 quarters of contraction in a row equals an official recession.
I can’t see how we fix our nation’s problems without defense cuts. It’s simply too huge a part of our budget.
Of course, that presupposes an intelligent and patriotic leadership who will make the necessary cuts while, as far as possible, NOT endangering military readiness.
Which we don’t have.
The path to civilizational ruin begins with forsaking a citizen militia and devoting more and more money to massive, overextended standing armies. We need defense cuts. Do I trust that the guys in charge now are cutting well? Hell no.
I’m not sure what the answer is. Just trying to sort all this out in my own head.
The Fed gives it to the banks, and it all goes into stocks. (Or in JP Morgan's case, into the same kind of sketchy investments that got us where we are today, but hey, they're a private business, it was their loss, that's what the well-known gang of statist disinformation artists here on FR told us at the time.)
Get your scroll button ready.
What was it about the law of diminishing Fed stimulus returns again? But don't worry: "the market is up." Because if $165 billion in Q4 stimulus could not even generate a positive GDP return, at least it sent the Russell 2000 soaring.
I have no idea but knowing a little history, I would bet it all that in fact this was the first out-and-out cutting back of the budget in real terms in say five decades. And very much to the point, a Republican president might have done the same thing under these conditions. But what irks me is that while no budget has been made in four years and none of the Third political rail programs have been touched, it seem to be a malicious slap in the face.
and then of course, the First Sociopath gets the extra bonus prize with the cuts causing the economy to contract for the first time in 3 years. So things are going very well for our beloved president.
Another thought just came to me. It's about the predator controversy, with that British UN Guy going to do a no-holes barred investigation into the civilian casualties having been deemed excessive.
It had crossed my mind as to why a Muslim that the President seems all too happy to flaunt, seemingly enthusiastic about the religion he grew up on, bowing for sure seems to be his thing, then there was the secret two day meeting with the Saudi Arabian King in Washington two years ago which got very little play always wondering what that was all about. But what has always troubled me was what seemed an overwhelming eagerness for the First Kenyan to be sending predator-drones certainly killing terrorists, but found his acceptance of the relatively high civilian casualties an issue I couldn't reconcile with his world attitude about America having done such evil things, specifically militarily And finding his acceptance of unusually high collateral damage inexplicable, irreconcilable with what he has espoused about America.
But then as I was writing this it finally hit me as I pondered his military budget cuts, It dawned on me that he is allowing these kids, whole families to die on purpose, no action is necessarily taken to avoid killing them, the reason of which is so palpable, I'm surprised i hadn't seen anyone talk about it.
More civilian casualties particularly like the ones going on in countries where hatred for America couldn't be worse, taking decades before it ever even leaves the cultural divide he's causing. I say, he's using thee predator-drones as one of many strategies in place to do as much damage to America as possible.
The main stream media creates the image of the beast for us to bow down and worship. America is being enslaved for the final battle. Those who love freedom will triumph. End times at hand. Obama is a poster child for human nature and leads the blind into destruction.
A century ago these econ conditions would indeed have started a war. But none of the eager participants can afford bullets now. That’s the bottom line reason the Euros aren’t at it already. Germany’s Bund just had a meeting wherein the military genius bleated that the Wehrmacht was “overextended” and just could not afford all their overseas deployments. Note that they might have deployed something line a couple platoons in the last decade (most are back already) plus a ship in the Indian ocean. And they’re bitching about probably losing more of our troops in Germany.
Every economy has a tipping point. We’ve seen that in Greece, Spain, Argentina, Italy, Ireland. I firmly believe that America will go over the brink during the next four years. The economic malaise, increase in government welfare spending, exploding debt, aging population, crumbling infrastructure and insolvent states and cities are going to make a major economic collapse inevitable.
China’s one child policy has led to a glut of young men - all of military age - for now.
Use ‘em or lose ‘em.
Did you see this?
I don’t think Greece and Spain have hit theirs yet.
Yes, but I will predict they government will "redefine" that just as they attempt to redefine they unemployment numbers.
Right before the election, the media swooned with some bogus BLS statistics saying the unemployment number was 7.8%, and Obama was crowned emperor overnight by the media.
The real unemployment number is about 22%, and everyone knows it. The BLS was politicized under Clinton and further under Obama. It is useless.
The term "Recession" will be redefined under our new Owellian 1984 "Newspeak."
I understand what your saying, but what good is a gun with no bullets ya know?