U.S. economy gives ground

WASHINGTON — The U.S. economy unexpectedly shrank from October through December, the first quarterly drop since 2009 and a reminder of the economy's vulnerability as automatic cuts in government spending loom.

The Commerce Department said the economy shrank at an annual rate of 0.1 percent mainly because companies restocked at a slower rate and the government slashed defense spending. Those trends partly reflected uncertainty late last year about the fiscal cliff, which Congress averted in a deal reached Jan. 1.

Economists say those factors could prove temporary, and the likelihood of another recession appears remote. Still, the sharp slowdown from the 3.1 percent annual growth rate in the July-September quarter, also driven by a drop in U.S. exports, raised concerns about 2013.

Congressional Republicans seem determined to permit deep cuts to defense and domestic programs to kick in as scheduled March 1. And Americans are coming to grips with an increase in Social Security taxes that has begun to leave them with less take-home pay.

Government spending cuts and slower company restocking, which can fluctuate sharply, subtracted a combined 2.6 percentage points from GDP. Those two factors offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer.

The Federal Reserve referred to the fourth-quarter slowdown in a statement after it ended a policy meeting Wednesday. The U.S. economy appears to have paused in recent months, the Fed said, mainly because of temporary factors.