Economy Contracts in Fourth Quarter Pay no attention to that minus sign! The consensus among economists seems to be that the economy did not really contract in the last quarter of 2012, despite the government's initial measure, released this morning, which shows the economy shrinking at an annual rate of 0.1 percent, its weakest performance since the spring of 2009. According to the consensus, the negative reading is bound to be revised upward in the months to come, for two main reasons. One, the factors that drove growth down, including declines in defense spending and business inventories, are notoriously volatile. Two, the reading is inconsistent with relatively upbeat recent news on other economic fronts, like housing. Let's hope they're right. But let's also acknowledge that an economy that is not-as-bad-as-you-might-think is not necessarily good. Economists' best guesses are for growth in early 2013 at an annual rate of about 1.5 percent, and for all of 2013 at 2 percent to 2.5 percent. At those levels, the economy is on track for continued high unemployment and with it, growth that is marked not by broad prosperity, but widening inequality. Soft demand for labor implies continued wage stagnation, which in turn implies lax consumer demand - a circumstance that will be even more pronounced in 2013, as workers adjust to lower paychecks due to the end of the payroll tax break. The best case, then - with growth around 2 percent - is not good enough. What's needed is a fiscal push for growth well above that level to repair the damage from the bust and set in motion a sustained recovery. What D.C.'s pushing for instead is budget austerity. The approach is self-defeating. Take note that that economy in the fourth quarter contracted in large part due to a 22.2 percent drop in military, a.k.a. government spending. More important, unemployment is a crisis demanding immediate action. The deficit is a problem requiring solutions that kick in as the economy grows. Yet we continue to treat unemployment as a problem we can get around to later and the deficit as a crisis that needs attention now. The minus sign may be revised away, but economic weakness looks here to stay.