U.S. 4th quarter GDP shrinks by 0.1 percent: No time to cut spending

The news came as a surprise to many but the 4th quarter of 2012 experienced a slowdown in growth that resulted in a very marginal but nonethess a negative growth rate for the GDP. The source of the problem was a sharp decline in inventory restocking and cuts in military expenditure. Outside of these two categories the economy continued to grow at a slow but steady pace of 1.2 % in private fixed investment and slow but solid growth in real personal consumer expenditures at 2.2%  Exports were also down by 5.7 %.So the picture is somewhat clouded although still relatively positive until we get more data and this preliminary data is adjusted by further statistics published on Feb.28th. Government cuts in both the local and state expenditures which fell by o.7 %, in defense by 22 % and by 15 % for the federal government contributed to the slowdown.

However you assess it it is still negative growth and we need this to be reversed in future reports and hopefully the unemployment data will show some improvement and the fiscal cliff commotion will cease to be a factor. As I have said many times before and economists like Paul Krugman, Joseph Stiglitz and Brad Delong and other Keynesians and post Keynesians this is not the time for austerity and deficit reduction through cut backs. There are considerable contagion risks associated with the failed austerity experiment in Europe and considerable hoarding of cash persists and the risk of a becalmed prolonged slump is still quite real if poor policy choices are made which accent deficit cutting as opposed to stimulus. It would be a serious blunder if the Democrats embraced the Republican obsession with cut backs as being the top priority at a time when the American and global economy is still not out of the woods yet.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in austerity, business cycles, deficit hysteria, deficits and debt, fiscal policy, full employment, U.S., Uncategorized, unemployment and tagged , , . Bookmark the permalink.

1 Response to U.S. 4th quarter GDP shrinks by 0.1 percent: No time to cut spending

  1. Grant Mitchell says:


    Hello Professor Chorney,

    Please have a look at the link above. You may find it amusing, it’s Andy Warhol’s sketch of a unemployment graph.


    Grant Mitchell

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