US economy contracts 0.1% in Q4

US economic output shrank in the fourth quarter for the first time since the second quarter of 2009 with gross domestic product (GDP) registering a 0.1 per cent contraction on annual basis due to a severe slump in military spending and decline in inventories, according to advance estimate released Wednesday by the US commerce department.

The GDP contraction following a healthy 3.1-per cent expansion in the third quarter brought surprise to the markets although analysts expected a significant slowdown in Q4 with an estimated 1.1-per cent growth on the back of the fiscal cliff crisis and the European slowdown.

The drop in Q4 GDP was primarily due to negative contributions from private inventory investment, federal government spending particularly in defence, and fall in exports. Positive contributors to the GDP included personal consumption expenditures, non-residential and residential fixed investments and decrease in imports.

Consumption expenditures recorded a 2.2-per cent increase in the fourth quarter compared with an increase of 1.6 per cent in Q3, contributing 1.52 per cent to the GDP.

Consumer durables increased 13.9 per cent from 8.9 per cent in the third quarter while non-durable goods declined to 0.4 per cent from 1.2 per cent. Services were slightly up at 0.9 percent, compared with an increase of 0.6 per cent in Q3.

Private investment dropped to a negative 0.6 per cent in Q4 from a 6.6-per cent increase in Q3, subtracting 0.08 per cent from the GDP.