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The U.S. economy unexpectedly contracted in the last three months of 2012, according to early data released by the Dept. of Commerce on Jan. 30.

It was a miss for forecasters, who had been expecting growth of 1.1 percent. Instead, the economy contracted by 0.1 percent. GDP had risen 3.1 percent in the third quarter, making the fourth largest decline.

However, looking at the numerical breakdown, things look brighter. Consumption growth rose by 2.2 percent, up from 1.6 percent in the third quarter, and business investment also climbed by 8.4 percent.

White House economist Alan B. Krueger wrote in a White House blog post Jan. 30 that Superstorm Sandy was to blame for the 0.1 percent drop in the annual rate of growth for the fourth quarter of 2012.

"Hurricane Sandy disrupted economic activity and Federal defense spending declined precipitously, likely due to uncertainty stemming from the sequester," Krueger explained. Federal defense spending, for one, declined 22.2 percent last quarter – the largest quarterly drop in 40 years. And Sandy, he said, destroyed $44 billion worth of fixed capital.

Meanwhile, as widely expected, the Fed reiterated its policy of keeping short-term interest rates near zero until unemployment drops below 6.5 percent, The New York Times reports – at the same time quelling some fears that its bond-buying strategy would end earlier than expected. The Fed further said that economic growth had "paused" – due to Hurricane Sandy, among other factors – and noted it would continue to stimulate the economy for as long as necessary.

Posted in: Government News
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