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Analysis from Business Insider:

People will be stunned to see that today’s GDP report went negative for Q4... the first negative print since The Great Recession.

But the report isn’t that bad. In fact it was arguably good.

For one thing, most of the collapse was due to a stunning fall in military spending. That’s not good for GDP, but it doesn’t reflect the real underlying strength of the economy.

And it’s mostly due to war drawdown. That’s a good thing for everyone!

There was also a big decline due to a reversal of big inventory buildups.

The change in real private inventories subtracted 1.27 percentage points from the fourth-quarter change in real GDP after adding 0.73 percentage point to the third-quarter change. Private businesses increased inventories $20.0 billion in the fourth quarter, following increases of $60.3 billion in the third and $41.4 billion in the second.

Seeing a decline in inventory buildups isn’t that big of a deal really. This number always goes back and forth.

What’s key is that the numbers that really reflect the strength of the economy were much better.

Personal consumption, fixed investment, and equipment/software all grew nicely. This is the real economy humming along.

Real personal consumption expenditures increased 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third. Durable goods increased 13.9 percent, compared with an increase of 8.9 percent. Nondurable goods increased 0.4 percent, compared with an increase of 1.2 percent. Services increased 0.9 percent, compared with an increase of 0.6 percent.

Real nonresidential fixed investment increased 8.4 percent in the fourth quarter, in contrast to a decrease of 1.8 percent in the third. Nonresidential structures decreased 1.1 percent; it was unchanged in the third quarter. Equipment and software increased 12.4 percent in the fourth quarter, in contrast to a decrease of 2.6 percent in the third. Real residential fixed investment increased 15.3 percent, compared with an increase of 13.5 percent

So, less war, more business investment. This was a good report.

"most of the collapse was due to a stunning fall in military spending. That’s not good for GDP, but it doesn’t reflect the real underlying strength of the economy. [...]

"Seeing a decline in inventory buildups isn’t that big of a deal really. This number always goes back and forth.

"What’s key is that the numbers that really reflect the strength of the economy were much better.

"Personal consumption, fixed investment, and equipment/software all grew nicely. This is the real economy humming along."

Makes sense to me.

Sorry to disagree with you but a 3% drop in GDP is not based upon a cut in government spending...that would be a huge huge cut in spending that simply did not occur.

I went to the Treasury Department and checked expenditures for the third quarter and the fourth quarter...I saw expenditures were up by over ten percent. Small increases in consumer spending which has been low is perhaps some improvement...but is not something to write home about.

Those defense contractors are laying people off now, the “savings” from government not investing in private sector that has been established for a long time is going to cost in GDP exponentially the first quarter. Not to say that we should not cut spending, but defense is the one industry sector for the government that actually has a probable good velocity of the dollars spent cause it is entered into an established private sector...