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Uncle Sam cut spending and businesses drew down inventories in the fourth quarter of 2012, causing the U.S. economy to contract for the first time in more than three years.

But don't start throwing around the R-word just yet.

"No one I know would seriously call this an indicator of recession," said Bill Hampel, chief economist with the Credit Union National Association.

While a contraction is never encouraging, economists pointed to temporary effects that may have caused a one-time dip, and they see better growth ahead.

It's "the best-looking contraction in U.S. GDP you'll ever see," Paul Ashworth, chief U.S. economist for Capital Economics said in a research note. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."

A large cut in federal spending, primarily on defense, was one of the biggest drags on growth. Defense spending contracted at a 22% annual rate.

Alan Kreuger, head of President Obama's Council of Economic Advisers, attributed the deep decline to the looming sequestration deadline.

"A likely explanation for the sharp decline in Federal defense spending is uncertainty concerning the automatic spending cuts that were scheduled to take effect in January, and are currently scheduled to take effect on March 1st," he said in a blog post.

Defense spending tends to be a volatile number in the GDP report, and is unlikely to decline so dramatically next quarter, Hampel said.

The other major drag came from business inventories declining in the fourth quarter. When that happens, it often signals businesses will have to buy more goods in the upcoming quarter to restock their shelves, which could lead to stronger growth in the first quarter of 2013.

"Businesses were selling in the fourth quarter, but not replacing the stuff on the shelves," Hampel said. "When inventories fall in one quarter, they're really likely to rise the next quarter."

Aside from those two factors, there were positive signs in the report. Consumer spending makes up the largest part of the U.S. economy and accelerated at a 2.2% annual rate in the fourth quarter.

"The basic engine of the economy looks to be in good shape," Hampel said.

Economists are predicting the U.S. economy will bounce back in the first quarter of 2013, and stay on trend with a 2% to 2.5% growth rate seen during the recovery.

A gradual housing recovery is likely to be a big contributor to that growth.

"Today's report is a reminder of the importance of the need for Congress to act to avoid self-inflicted wounds to the economy," Krueger said.

"The momentum in the economy is positive, but not booming," Hampel said.

Wednesday's GDP report is the Commerce Department's first estimate for the fourth quarter figures. The government plans to revise the numbers twice over the next two months. http://money.cnn.com/2013/01/30/news/economy/gdp-report/index.html?hpt
=hp_t3

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Barack Obama's Presidency has been shaped by the 2008 financial crisis. Obama has been most severely criticized for not reducing unemployment below 8%. However, he can't force businesses to hire. Corporations have had record earnings, and are sitting on mountains of cash. They are using those funds to pay out dividends and buy up their stocks. The problem is insufficient consumer demand. Businesses won't hire until they are more confident demand is sustainable. Obama submitted the Americans Jobs Act in September 2011. It was criticized for having the same elements as the Stimulus Act, even though those policies worked [to an extent].

In February 2009, Congress approved Obama's $787 billion economic stimulus package. It gave tax cuts, extended unemployment benefits and expedited funds for public works projects. In just seven months, it pumped $241.9 billion to the economy, stirring growth to a robust 3.9% by early 2010. Unemployment fell to 9.5%, from its 2009 peak of 10.2%. More at http://useconomy.about.com/od/people/p/President-Barack-Obama-Economic
-Policies.htm]
Now it is at

Check out Politifact's comparison between 2008 and 2012 ( http://www.politifact.com/truth-o-meter/article/2012/jun/01/scorecard-
economy-obama/]). Some of their facts are incomplete because of when it was done, but it's a start. Take 2008 out and start with 2009, because that's both where we were as a result of the previous administration and Obama's policies hadn't had a chance to take effect.

A few facts:

In 2009, Unemployment rate was 7.8%. It went up to 9.7% in 2010, still reflective of the recession. Now it is at 7.9%. There are numerous reasons, including

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Older workers are increasingly delaying retirement and continuing to work past age 65, staying in jobs that otherwise would normally be filled by younger workers. According to data from the Census Bureau, the share of workers ages 65-plus in the labor force jumped from 12% in 1990 to 16% in 2010.

"We will have to work a lot longer to get by with less. It's just getting a lot more expensive to be old than it used to be," Olivia Mitchell, professor of economics and executive director of Pension Research Council at Wharton School of Business, told USA Today.

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Nonetheless, it's been brought down almost 2%, and was lower than 2009 in December 2012. Since then, some contributory factors are: "The government continued to shed workers, a trend that began four years ago." Thank you, Republicans. "The steep spending cuts set to kick in next month have kept scores of employers from expanding, investing and adding workers. Many more have simply let people go in anticipation of the cuts." Again, thank you Republicans for giving us sequestration. State and local governments have been forced to cut deeply and shed jobs in response to fiscal challenges. Again, thank you Republicans (the nuances of cuts to federal, state and local governments you'll have to look for yourselves, but it's there, and most of it brought about by Republican state and federal legislators seeking "smaller government"). Federal employment is at historic lows relative to the overall workforce (see chart at http://www.treasury.gov/resource-center/data-chart-center/Documents/20
120502_EconomicGrowth.pdf )

Another:

In the last quarter of 2008, yearly GDP was -8.9%! It's just taken a dive, but as of the last quarter of 2012 was at 2%. Not good, but a major improvement over what Bush left us with!


And:

The median home sale price was $208,600 in 2009. As of January, it was $180,800, but it's fluctuated a lot and now:

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Without question, 2012 was the long hoped-for turnaround year for the housing market. The RE/MAX National Housing Report shows a broad recovery across the country, with both home sales and prices rising almost every month of the year. For December, the number of home sales was up 3.8% and the median price of those homes rose 7.6%.More at http://files.a2.remax.com/content/REMAX_National_Housing_Report_Januar
y_2013.pdf

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Existing-home sales eased in December but are well above a year ago, while limited inventory maintained the upward momentum in home prices, according to the National Association of Realtors®. Total sales in 2012 were the highest in five years, while the annual price rose the most since 2005.More at http://www.realtor.org/news-releases/2012/10/existing-home-sales-slip-
in-december-prices-continue-to-rise-2012-totals-up

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A few more:

-- Growth in the U.S. has outpaced that of other advanced economies affected by the global
financial crisis.

-- Despite the worst financial crisis since the Great Depression and a series of shocks in its aftermath, the economy has gradually strengthened since mid-2009.

-- Despite challenges, growth in private demand has outpaced GDP growth since late 2010

-- Regulations are not impeding business lending or investment

-- Regulations have not dampened corporate profits, even in the industries undergoing significant regulatory change, such as energy, health care, and finance.

The above points charted at http://www.treasury.gov/resource-center/data-chart-center/Documents/20
120502_EconomicGrowth.pdf

Outstanding credit card debt, household debt rates and mortgage rates are all also down ( http://www.politifact.com/truth-o-meter/article/2012/jun/01/scorecard-
economy-obama/)

Then there's corporate profits...well, we know how THOSE have been going...as well as the wealth of the richest Americans.

It's a mixed bag, but overall an improvement from the last administration. Nothing is simple, especially not in finance, and everything fluctuates. But the fact is that we HAVE been improving since 2008, and even more since things bottomed out in 2009 as a result of where the previous administration left us.

Tit for tat got us where we are today. If we want to be grownups, we need to resist the ugliness. If we each did, this would be a better reflection on Firefly and a more welcome place. I will try.