There's very disappointing economic news out this morning from the Commerce Department: The American economy actually shrank in the fourth quarter of 2012, by a rate of 0.1 percent. This follows on the heels of relatively strong growth, of 3.1 percent, in the third quarter.
What happened? Commerce cited three primary factors contributing to the downturn:
* Exports fell by 5.7 percent in the quarter, after having increased by 1.9 percent in the third.
* Expenditures by the federal government dropped by 15.0 percent, after having increased by 9.5 percent in the third quarter. Defense spending dropped by 22.2 percent in the fourth quarter.
* Business inventories subtracted 1.3 percentage points from GDP, after they had added 0.73 percentage points in the previous quarter.
It's important to note that this is the first estimate of GDP for the quarter, and subsequent revisions may push the economy into the black. But it still looks like a real setback for the recovery.
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