US economy shrinks at 0.1% in Q4

2013-01-31 00:12:08 GMT2013-01-31 08:12:08(Beijing Time)



The world's largest economy grew 3.1% in July to September.

The fourth quarter period was dominated by the "fiscal cliff" - the spending cuts and tax rises that had been due to come into force from 1 January.



Spending cuts


It will add to pressure on the US Federal Reserve to do more to stimulate the economy. Members of its Federal Open Markets Committee are due to announce the conclusions of their latest policy-setting meeting later on Wednesday, and will have had an advance look at the economic data.

Growth was dragged down by a 22% cut in the federal government's defence spending - the biggest since 1972, when the US was winding down from the end of the Vietnam War - and by the decision of many businesses to halt the rapid rebuilding of their inventories that began over the summer.

These two relatively volatile components of the data subtracted a combined 2.6 percentage points from the overall growth figure.



"Frankly, this is the best-looking contraction in US [gross domestic product] you'll ever see," said Paul Ashworth, an economist at Capital Economics, in a note to clients. "The drag from defence spending and inventories is a one-off. The rest of the report is all encouraging."

The October-to-December period was also negatively affected by Storm Sandy, which caused the closure of many factories and businesses in the New York area, and by a sharp drop in exports.


Debt ceiling

Looking ahead, domestic spending in the current quarter is expected to be dogged by further uncertainty over the federal government's tax and spending.

Workers have already experienced a 2% average cut in their take-home pay, due to the expiry of the payroll tax holiday. That means a household earning $50,000 a year will have about $1,000 less to spend.

The income lost is likely to have been behind a sharp fall in consumer confidence recorded by surveys in January.

Meanwhile, the recently re-elected President Barack Obama and Congress are expected to clash once again in the coming months over the debt ceiling.

The US Treasury is approaching the $16.4tn (£10.3tn) legal limit on its total debt, and must gain permission from Congress to borrow the money needed for it to continue meeting its bills.




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