Economy shrinks 0.1 percent in 4Q

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The U.S. economy unexpectedly contracted in the fourth quarter for the first time since the recession ended as government spending decreased and businesses cut back on restocking.

The Commerce Department said today that the economy shrank at an annual rate of 0.1 percent in the fourth quarter. That's a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

The Associated Press said the surprise contraction could raise fears about the economy's ability to handle tax increases that took effect in January and looming spending cuts.

Still, the weakness could be because of one-time factors, the AP said. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth. And those volatile categories offset faster growth in consumer spending, business investment and housing — the economy's core drivers of growth.

For all of 2012, the economy expanded by 2.2 percent, better than 2011's growth of 1.8 percent.

The economy might stay weak at the start of the year because Americans are coming to grips with an increase in Social Security taxes that has left them with less take-home pay.

Subpar growth has held back hiring. The economy has created about 150,000 jobs a month, on average, for the past two years, AP reported. That's barely enough to reduce the unemployment rate, which has been at 7.8 percent for the past two months.

Economists forecast that unemployment stayed at the still-high rate again this month. The government will release the January jobs report on Friday.

Click here for the full report.

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