Sunday, December 28, 2014
FAIRFIELD-SUISUN, CALIFORNIA
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Economists unfazed by brief pause in growth

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From page A11 | February 01, 2013 |

The economy’s surprise fourth-quarter contraction is being treated by economists – properly, in our opinion – as a hiccup and not a harbinger that the recovery is in trouble.

The decline announced this week was small, 0.1 percent, but still a shock after more than three years of steady but unspectacular growth. The people who worry about these things weren’t worried. The Federal Reserve blamed it on “weather-related disruptions and transitory factors.”

One of those factors was a 22.2 percent drop in defense spending, the largest since 1972. The Financial Times says the drop in defense spending alone knocked 1.3 percent off gross domestic product for the final quarter of 2012.

How “transitory” a factor that is depends on whether Congress goes through with massive across-the-board federal spending cuts in March. While the war in Afghanistan is winding down, the Pentagon is not above some dramatic pre-emptive belt-tightening to warn the lawmakers off blindly cutting defense spending.

Government spending has been a drag on the economy generally, declining for the ninth time in 10 quarters.

But a healthier private sector has proved able to shrug off those cuts, and economists are still looking for a strong recovery. Both consumer spending and business investment rose during the quarter. USA Today noted that Americans’ disposable income rose 6.8 percent for the quarter, a four-year high, and the share of their income being used to pay off debts fell to 10.6 percent, a 29-year low.

In one of the hardest-hit sectors of the economy, housing, prices rose more than 5 percent in November over a year earlier, an increase not seen since 2006, right before the real-estate bubble burst.

For all of 2012, the economy grew at 2.2 percent – not great, but not bad, either. Most economists predict it will continue to perform at that level for 2013. However, some optimists are forecasting growth in excess of 3 percent. Employment growth, too, was good, but not great.

The wild card in a robust economic recovery is Congress, which could still mess it up through miscalculation, ineptitude or sheer political orneriness. Congress wisely postponed a fight over the federal debt ceiling until May 18. By March 1, lawmakers must find some way out of the $85 billion in automatic budget cuts they foolishly imposed on themselves last year.

Scripps Howard News Service

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Discussion | 2 comments

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  • richJanuary 31, 2013 - 2:44 pm

    As it gets worse, look for more government sycophantic media reports like this that seemingly are from a failed communist state. Da komrades! All is well! The economy contracts and doesn't expand after many quarters of very weak and insipid ''growth''. Continue to vote for your rat party dumb Californians.

    Reply | Report abusive comment
  • djkFebruary 01, 2013 - 7:04 am

    I often wonder how pathetic a life one must have that the highlight of their day is to post a assinine comment on the DR.

    Reply | Report abusive comment
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