US economy surprisingly shrinks for first time in 3 years, decline seen temporary

Jan 31 2013, 10:44 IST
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The U.S. economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. (Reuters) The U.S. economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. (Reuters)
SummaryUS economy shrank for first time since recession ended, hurt by biggest cut in spending in 40 yrs.

An inflation gauge in the report advanced at just a 1.2 percent pace, down from 1.6 percent in the third quarter. So-called core prices rose just 0.9 percent, the smallest gain in two years.

Consumer spending, which accounts for more than two-thirds of economic activity, rose at a 2.2 percent rate, accelerating from the prior quarter's 1.6 percent growth pace, while business investment rebounded after its first drop in 1-1/2 years.

The housing market was another positive.

Homebuilding grew at a 15.3 percent rate after notching a 13.5 percent growth pace in the third quarter. It added to growth last year for the first time since 2005.

"A turnaround in the housing market will be a key support to the economy this year, with homebuilding contributing to growth and higher home prices supporting consumer spending," said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh.

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