By PAN PYLAS
LONDON (AP) â¿¿ Markets brushed aside news that the U.S. economy shrank in the final quarter of 2012 for the first time in over three years as the decline was largely due to an unexpectedly big fall in national defense spending.
The Commerce Department reported that the U.S. economy shrank by an annualized rate of 0.1 percent in the fourth quarter. That was way down on the 1.1 percent growth that analysts had been expecting, even factoring in the impact of Hurricane Sandy. It also contrasted sharply with the 3.1 percent growth rate recorded in the previous three-month period.
The market impact of the figures was minimal as analysts pointed to the fact that the fall was due to a 22.2 percent slump in defense spending, which sliced around 1.3 percentage points off growth. Had defense spending not fallen off so sharply, the outcome would have been more or less in line with expectations."Frankly, this is the best-looking contraction in GDP you'll ever see," said Paul Ashworth, chief U.S. economist at Capital Economics. "This isn't the start of a new recession." In Europe, the FTSE 100 index of leading British shares edged down 0.3 percent to close at 6,323.11 while Germany's DAX fell 0.5 percent to 7,811.31. The CAC-40 in France lost 0.5 percent to 3,765.52. In the U.S., the Dow Jones industrial average was down less than 0.1 percent to 13,945.05 while the broader S&P 500 index was 0.1 percent lower at 1,506.08. The focus will likely remain on the U.S. all day ahead of the Federal Reserve's first policy statement of the year, which could indicate a shift in its monetary stance. The Fed has operated a super-easy and super-cheap monetary policy since the financial crisis started in 2007, but there is a growing expectation that it may be tempted to reverse its position sometime this year.