A dip in GDP during the fourth quarter of 2012 stemmed largely from a dive in federal defense spending. Some economists see a cautionary lesson for upcoming sequester talks in Congress.
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When the government reported Wednesday that the economy shrank in the most recent quarter, forecasters generally said not to worry. This was a temporary slowdown, driven by one-time factors.
Defense spending fell by an unexpectedly large amount, and a decline in business inventories put some manufacturing activity on hold. The major storm named Sandy probably played a role as well.
But that assessment comes with an asterisk – one that Americans including members of Congress may want to heed. Some of the “temporary” setbacks could easily resurface if Congress doesn’t do a careful job dealing with partisan conflicts over federal spending.
It’s not unthinkable that economic growth could turn negative for a couple of quarters – one definition of a recession – if the automatic spending cuts known as the “sequester” take effect as currently scheduled on March 1.
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