Contraction Does Not Equal Recession

A fourth-quarter contraction in the U.S. economy is not a harbinger of recession, CUNA Chief Economist Bill Hampel tells CNN Money.

Federal government spending cuts and a drawdown of inventories by businesses caused the economy to contract for the first time in three years, according to CNN Money.

“No one I know would seriously call this an indicator of recession,” says Hampel.

Gross domestic product—the broadest gauge of U.S. economic growth—shrank at an annual rate of 0.1% last quarter, according to the Commerce Department. That constituted the first quarterly contraction since second quarter 2009, during the Great Recession.

On drag on the economy was a 22% decline in defense spending in the fourth quarter. In the GDP report, defense spending usually is a volatile number and is not likely to decrease as much this quarter, Hampel tells CNN Money.

The other drag last quarter was a drawdown of inventories. “Businesses were selling in the fourth quarter, but not replacing the stuff on the shelves,” Hampel says. “When inventories fall in one quarter, they’re really likely to rise the next quarter.”

The basic driver of the economy–consumer spending–appears to be in good shape, Hampel says, adding “the momentum in the economy is positive but not booming.”


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