Published January 30, 2013
Republicans accused the White House of having selective amnesia Wednesday after President Obama's top spokesman blamed Republicans for an unexpectedly dismal GDP report that showed the economy contracting in the fourth quarter. The White House had suggested GOP willingness to let sweeping defense cuts take effect was the culprit -- but an aide to House Speaker John Boehner quickly reminded Democrats that Republicans have tried to stop those cuts.
"These arbitrary, automatic cuts were a creation and demand of the White House in 2011," Boehner spokesman Brendan Buck said. "Twice the House has passed legislation to replace them with common sense cuts and reforms. If there was any uncertainty late last year about the sequester, it was because the Democratic-controlled Senate, per usual, never lifted a finger to pass a plan to replace it."
White House Press Secretary Jay Carney and House Democratic Leader Nancy Pelosi earlier alleged that GOP feet-dragging during talks over the fiscal crisis and willingness to accept automatic defense cuts contributed to the economic squeeze. The Commerce Department report showed the economy shrinking for the first time since 2009.
"Consumer confidence overall has been rising, and consumer spending has been rising, but there's more work to do, and our economy is facing a major headwind ... and that's Republicans in Congress," Carney said Wednesday.
The White House press secretary blamed "talk about letting" automatic spending cuts kick in, "as though that were an acceptable thing."
Carney, however, glossed over the fact that both Democrats and Republicans agreed to the 2011 debt-ceiling legislation that set in motion more than $500 billion in defense cuts. Lawmakers had a chance to nix those cuts by agreeing to a comprehensive deficit-reduction plan -- but they couldn't reach a deal. While a few Republicans had discussed letting the cuts kick in, most congressional leaders on both sides of the aisle still say they want to avert them.
Pelosi further charged Wednesday that "today's disappointing GDP report is a direct result of the economic uncertainty created by House Republicans' strategy of obstruction and manufactured crises."
But Rep. Sam Graves, R-Mo., chairman of the House Small Business Committee, said the economic numbers are a product of White House policies.
"Is this stunt in economic growth really a surprise? Anti-growth policies and an anti-business White House produce just that -- a lack of growth," Graves said.
The looming cuts to defense and other areas are thought to have played some role in the economic contraction in the last quarter, as many contractors have already started cutting back.
The economy was also hurt by fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.
Rep. Kevin Brady, R-Texas, incoming chairman of the Joint Economic Committee, said the "stunning contraction" can't be blamed only on defense cuts and fiscal crisis talks -- though he did say accelerated defense spending in the third quarter "artificially boosted" growth at the time.
He added: "The bottom line is that America's economy continues to struggle primarily due to President Obama's penchant for political brinkmanship and the pervasive uncertainty caused by his focus on higher taxes, regulation and ObamaCare."
The White House said while GDP is the broadest measure of economic activity, other indicators of economic performance suggest that the economy continued to recover in the fourth quarter.
"Some of the fiscal issues that may have weighed on the economy in the fourth quarter of 2012 were resolved with the passage of the American Taxpayer Relief Act in early January, which provided more than 98 percent of Americans and 97 percent of small businesses with the certainty that their income taxes will not rise," the White House said in a statement Wednesday, before Carney spoke to reporters. "Today's report is a reminder of the importance of the need for Congress to act to avoid self-inflicted wounds to the economy. ... The weakness was mainly the result of one-time factors."
But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, may raise fears about the economy's durability in 2013. That's because the automatic spending cuts - which were delayed in the latest fiscal crisis deal -- will cut into domestic and defense programs starting in March unless Congress reaches a deal to avert them.
And Americans are coming to grips with an increase in Social Security taxes that has begun to leave them with less take-home pay.
Still, the government spending cuts and slack inventory growth in the fourth quarter offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer.
Consumer spending added 1.5 percentage points to GDP, and business investment added 1.1 points -- both stronger contributions than in the third quarter.
And for all of 2012, the economy expanded 2.2 percent, better than 2011's growth of 1.8 percent.
Exports fell by the most in nearly four years, a result of Europe's recession and slower growth in China and some other large developing countries.
Incomes, though, jumped last quarter as companies paid out special dividends and bonuses ahead of expected tax increases in 2013. Commerce estimated that businesses paid nearly $40 billion in early dividends. After-tax income, adjusted for inflation, rose 6.8 percent, the most in nearly four years.
Superstorm Sandy likely also dragged on growth by closing factories, disrupting shipping and shutting down retail stores. While the department did not specify its effects on GDP, it estimated that Sandy destroyed about $36 billion in buildings and other private property and $8.6 billion in government property.
Subpar growth has held back hiring. The economy has created about 150,000 jobs a month, on average, for the past two years. That's barely enough to reduce the unemployment rate, which has been 7.8 percent for the past two months.
The biggest question going forward is how consumers react to the expiration of a Social Security tax cut. Congress and the White House allowed the temporary tax cut to expire in January, but reached a deal to keep income taxes from rising on most Americans.
The tax increase will lower take-home pay this year by about 2 percent. That means a household earning $50,000 a year will have about $1,000 less to spend. A household with two high-paid workers will have up to $4,500 less.
The Associated Press contributed to this report.