The U.S. economy shrank unexpectedly in the fourth quarter, suffering its first decline since the 2007-2009 recession as businesses reduced restocking inventories, exports fell, and government spending plunged. The Commerce Department said Wednesday that gross domestic product (GDP) fell at a 0.1 percent annual rate in the October-December period after growing at a 3.1 percent rate in the third quarter. Economists expected a fourth-quarter GDP gain of about 1 percent. It was the worst performance since the second quarter of 2009, when the Great Recession ended, and showed the economy entering 2013 with no momentum. The surprising contraction in GDP could raise fears about the economy's ability to handle tax increases that took effect in January and looming government spending cuts. However, the fourth-quarter weakness may be because of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from GDP growth, and those volatile categories offset faster growth in consumer spending, business investment, and housing—the economy's core drivers of growth. For all of 2012, the U.S. economy grew 2.2 percent, better than the 2011 growth of 1.8 percent. Still, economists say a growth pace in excess of 3 percent would be needed over a sustained period to significantly lower high unemployment.
