US economy surprisingly shrinks for first time in 3 years, decline seen temporary
fundamentals were sound.
Faster jobs growth could help the economy weather the headwind of higher taxes and possible spending cuts. A payroll tax cut expired on Jan. 1 and big automatic spending cuts are set to take hold in March unless Congress acts.
Federal Reserve officials, at the end of a two-day meeting, noted economic activity had "paused" due to weather-related disruptions and other "transitory factors." They expressed confidence the recovery would regain speed with continued monetary policy support, and they left in place their monthly $85 billion bond-buying stimulus plan.
Economists say a growth pace in excess of 3 percent would be needed over a sustained period to significantly lower high unemployment. For the whole of 2012, the economy grew just 2.2 percent, and a report on Friday is expected to show the jobless rate held at 7.8 percent for a third straight month in January.
The Fed's commitment to loose monetary policy pushed the dollar to a 14-month low against the euro. Prices for U.S. Treasury debt rose marginally, while stocks on Wall Street fell.
INVENTORY DRAG
In the fourth quarter, the recovery had to deal with uncertainty over the so-called fiscal cliff of scheduled tax hikes and budget cuts, which hurt confidence even though households and businesses seemed to shrug off the worries.
Businesses, caught with too much inventory on their hands in the third quarter, slowed their stock building in the final three months of the year.
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