Economy in U.S. shrinks as defense spending slumps

‘Increasingly Optimistic’

“In the United States, we’re becoming increasingly optimistic,” Michael DeWalt, a spokesman for Peoria, Illinois- based Caterpillar, said on a Jan 28 conference call with analysts. “We expect the U.S. housing industry to help the economy in 2013.”

Today’s report also reflected the effect of superstorm Sandy, which struck the East Coast in late October and caused widespread damage including shuttering businesses and destroying autombiles. Rebuilding efforts later in the quarter may have cushioned some of the blow, although the Commerce Department said it couldn’t quantify the effects.

Most of the slowdown in inventories last quarter was due to the hurricane, which severely disrupted supply chains and shut- in manufacturing activity, thus inhibiting producers from stockpiling goods, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

Americans were able to finance their purchases in part due to a jump in incomes in December, as companies pulled dividends forward to avoid higher taxes in 2013.

“Household income spiked in December, as firms helped out their workers and shareholders by accelerating wages and salaries and by paying out large one-time dividends in December to avoid the higher taxes anticipated based on the fiscal cliff debate,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, wrote in a note before the report.

Bloomberg News

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