Steady hiring is needed to resume economic growth. The government said Wednesday that the economy shrank at an annual rate of 0.1 percent in the October-December quarter, hurt by a sharp cut in defense spending, fewer exports and sluggish growth in company stockpiles.
The contraction points to what is likely to be the biggest headwind for the economy this year: sharp government spending cuts and ongoing budget fights.
The economy will likely expand in the current quarter and is forecast to grow around 2 percent this year as strength in areas like housing and auto sales could partly offset government cutbacks. But looming, across-the-board spending cuts, set to take effect March 1, would weaken a still-precarious recovery.
Two key drivers of growth improved last quarter. Consumer spending, which accounts for 70 percent of economic activity, increased at a faster pace and businesses invested more in equipment and software.Homebuilders, meanwhile, are stepping up construction to meet rising demand. That could create more construction jobs. Home prices are rising steadily. That tends to make Americans feel wealthier and more likely to spend. Housing could add as much as 1 percentage point to economic growth this year, some economists estimate. And auto sales reached their highest level in five years in 2012. That's boosting production and hiring at U.S. automakers and their suppliers.