Politics
Sluggish economy may interfere with Obama agenda early in 2nd term
Analysts said the economy is still on track to grow steadily if modestly at a roughly 2 percent pace, as long as the housing and auto industries continue to recover.
The Commerce Department attributed the economic contraction mainly to companies restocking at a slower rate and to reductions in government spending on defense. While companies will ultimately have to rebuild their inventories, the cuts in defense spending could offer a hint of things to come.
The administration argued that the 22 percent reduction in defense spending was partly in anticipation of automatic spending cuts that were going to take effect at the beginning of the year. Obama and congressional Republicans averted that so-called fiscal cliff by extending Bush-era tax rates to all but the wealthiest Americans.
But the deal simply delayed the automatic cuts until March 1. At that point, the Pentagon faces across-the-board cuts of 7 percent, while domestic programs will have to shrink by 5 percent. Some analysts believe that if those cuts are allowed to occur, as some Republicans are now suggesting, the economy could lose a half a percentage point of growth.
Some in the business community hope the experience in the last quarter will alert lawmakers to the potential economic damage the automatic cuts could create.
“I don’t think any time you see a reduction in economic growth that it’s good news,” White House press secretary Jay Carney conceded Wednesday.
But he cautioned, “We need to make sure that in Washington we are not taking actions that undercut that progress that we have been making and can continue to make and will continue to make.”
