The US economy has shrunk for the first time in more than three years, in light of tax increases and spending cuts.
The US economy has shrunk for the first time in more than three years, casting uncertainty over the economic durability in light of government tax increases and looming spending cuts.
The gross domestic product (GDP) and the total output of goods and services in the US decreased at an annual rate of 0.1 percent in the fourth quarter of 2012, the Department of Commerce announced on Wednesday.
The October-December downturn marks a sharp contrast from the 3.1 percent growth rate tallied during the July-September quarter.
Economists blame the contraction on deep cuts in defense spending, fewer exports and a sluggish growth in company stockpiles.
“A likely explanation for the sharp decline in Federal defense spending is uncertainty concerning the automatic spending cuts that were scheduled to take effect in January, and are currently scheduled to take effect on March 1st,” said Alan B. Krueger, the Chairman of the Council of Economic Advisers.
Krueger went on to say that the economic slump “could have been affected by disruptions caused by Hurricane Sandy, although a precise estimate of the effect of the hurricane on GDP is not available.”
This comes as US consumer confidence falls to its lowest mark in over a year, with Americans growing more pessimistic about their financial prospects amid a struggling economy.
Experts characterize the drop in consumer outlook to dissatisfaction with the fiscal cliff negotiations, employment market and expectations of inflation.
In the aftermath of the so-called “fiscal cliff” fallout, Washington raised taxes for many Americans and a number of budget decisions still remain open, plunging the US back into recession.
GMA/JR
