"This really was a story about a payback in national defense spending"
- Paul Edelstein, director of financial economics at IHS Global Insight
The U.S. economy unexpectedly shrunk in the last quarter of 2012, due to the biggest plunge in defence spending and modest inventory growth. Nation's gross domestic product, the volume of all goods and services produced, contracted by 0.1% in the last three months of 2012, down from a 3.1% growth in the third quarter, defying expectations for slow growth and possibly providing incentive for more Federal Reserve stimulus. This is a worst performance of the economy since the second quarter of 2009, when the world's largest economy was still in the recession. The fourth quarter was mostly was dominated by the so-called "fiscal cliff", which was averted in the last minutes of 2012, however, economists warned that fears of an abrupt cut in government spending weighed on business and consumer confidence.
"The number isn't as bad as it looks," said Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, whose team projected a 0.3 percent gain, the lowest in the Bloomberg survey. "This really was a story about a payback in national defense spending."
"Once you get beyond the weak headline, the rest of the report was good enough to satisfy expectations," said Neil Dutta, head of economics at Renaissance Macro Research.
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