The decline announced last week was small, 0.1 percent, but still a shock after more than three years of unspectacular growth. 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, which is what many of them would be happy to do.
But keep in mind that defense cuts are likely to have an unfortunate impact on the massive Lockheed Martin plant in Marietta and the thousands who work there, and the thousands more who work at its suppliers and other facilities elsewhere in Georgia and neighboring states.
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 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.
Meanwhile, jobless figures released on Friday show unemployment rising to 7.9 percent in January from 7.8 percent in December. It’s another sign Team Obama’s high-tax, more regulation approach is taking us in the wrong direction.
The wild card is Congress, which could mess things up even further through miscalculation, ineptitude or sheer political orneriness. Congress 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.
Congress is in bad shape, and the economic outlook is not much better.