American gross domestic product contracted by an annual rate of 0.1 percent between October and December of last year, the Commerce Department said Wednesday.

GDP expanded 2.2 percent for all of 2012, compared with 1.8 percent growth in 2011.

— Posted by Alexander Reed Kelly.

The Wall Street Journal:

The decline reflects worries about the so-called fiscal cliff. The economy reversed from a 3.1% pace of growth in the third quarter largely because federal government spending fell by 15% and private business, likely fearing slack in demand, let inventories dwindle.

… With the worst effects of the pending budget cuts and tax increases averted after Congress and the White House reached an agreement this month, Mr. Hopper said he expects the economy to return to moderate growth this year.

However, tax increases and possible federal budget cuts could weigh on advances in the first half of the year, said Stuart Hoffman, chief economist at PNC Financial Services Group PNC +0.01% . Exports are still a concern because of the recession in Europe.

“The economy has less momentum going into 2013 than initially thought, making it vulnerable to external shocks,” Mr. Hoffman said in a research note. “A turnaround in the housing market will be a key support to the economy this year.”

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