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What's Really Going on Inside the Latest GDP Number

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Sit down before you read this...

It's going to make your head spin and, worse, change the way you think about what's real in America.

Christmas came early this year, for the market that is, by way of a gift from the U.S. Bureau of Economic Analysis.

However, this branch of the U.S. Department of Commerce didn't put its gift under anybody's tree. They put it over all of us.

The gift was headline news that the "third revision" of the third-quarter gross domestic product (GDP) number showed the U.S. economy grew at a whopping 5% annualized rate, not the 3.9% rate posted in the "second revision."

That sounds like good news, right?

Well, here's what's scary...

Q4 GDP Shrinks for the First Time Since the Great Recession

Wilted Flower

For the first time since the Great Recession, the nation's gross domestic product contracted in the fourth quarter, declining 0.1% and falling well short of expectations, the Commerce Department said Wednesday.

GDP, the broadest measure of the nation's economic health, had climbed 3.1% in the third quarter. The consensus for Q4 GDP was 1% growth.

The first decrease in GDP in 3 1/2 years resulted largely from a steep decline in military spending with sequestration looming and lower company inventories as businesses curtailed investments and expansions amid fiscal cliff fears and higher taxes.

Some economists also pointed to Superstorm Sandy, budget battles and debt ceiling debates as additional culprits.

"It's hard to see the economy really kicking into higher gear until we're further down the line and have more of a chance to digest tax increases and the spending cuts that are coming,"
Moody Analytics chief economist Mark Zandi said in a call with reporters.

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Gas Prices, Bad Weather Slam U.S. Economy; GDP Growth Slowed to 1.8%

The U.S. economy's struggling recovery hit another bump in the road in the first quarter, with brutal winter weather and rising gas prices combining to put the brakes on growth.

According to the U.S. Commerce Department, gross domestic product (GDP) growth slowed to an annual rate of only 1.8%, compared with 3.1% in the last quarter of 2010. The GDP measures all the goods and services produced in the United States.

"The biggest factor was weather. It hurt consumption and construction," Stephen Stanley, chief economist at Pierpont Securities, told Reuters. "Energy hurt consumption as well. Higher gasoline prices took a bigger bite out of people's budget."

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