White House blames Sandy, spending cuts as economy shrinks

The White House on Wednesday blamed the devastation from Superstorm Sandy and disruptions from deep scheduled spending cuts for the surprise 0.1 percent drop in gross domestic product (GDP) in the fourth quarter of 2012. It was the first such contraction since early 2009 when the country was in the grips of the Great Recession.

The chairman of President Barack Obama’s Council of Economic Advisers, Alan Krueger, said in a post on the official White House blog that the bad news came “amid signs that Hurricane Sandy disrupted economic activity and Federal defense spending declined precipitously, likely due to uncertainty stemming from the sequester.”

That law will slash some $1.2 trillion in spending over 10 years by targeting domestic and defense programs with across-the-board cuts. Obama and Republicans in Congress have been starkly at odds over how best to replace the sequester with less disruptive debt-battling measures. The president has said spending cuts must be paired with tax revenue increases, something Republicans oppose.

Meanwhile, Republican Senate Minority Leader Mitch McConnell renewed the GOP’s calls for spending cuts on the Senate floor on Wednesday, urging a look into “the dark corners that often evade real scrutiny” on a mission to make government programs more efficient and scrap those that don’t work.

“We need to root out waste, which will serve as the first real test of Democrats’ seriousness in this debate,” he said.

McConnell added, “Why is the federal government funding Chinese studies on pig manure, and research into the smoking habits of Jordanian college students and reality TV shows in India? Are Democrats prepared to cut this kind of waste?"

Krueger took pains to defend Obama’s first-term economic record, stressing that “over the last fourteen quarters, the economy has expanded 7.5 percent overall,” and touting private sector growth, investment and consumption. Over all of 2012, the economy grew 2.2 percent. And economists largely agreed with the White House's take on the impact of Sandy and spending cuts.

“Federal defense purchases declined at an annual rate of 22.2 percent in the fourth quarter of 2012, the largest quarterly decline in 40 years,” Krueger said. “The decline in government spending across all levels reduced real GDP by 1.33 percentage points in the quarter.”

Sandy also played a role, Krueger said, notably by disrupting trade, “although a precise estimate of the effect of the hurricane on GDP is not available.”

Krueger also warned Congress against dealing the economy any “self-inflicted wounds.”