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.