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Slower growth in stockpiles was a key reason the economy shrank at an annual rate of 0.1 percent in the October-December quarter, the first contraction in 3 1/2 years. Deep cuts in defense spending and fewer exports also contributed to the decline. Most analysts predict that the economy will grow again in the January-March quarter, though likely at a lackluster annual rate of around 1 percent. They expect the economy to expand about 2 percent for the full year. A big question is how consumers respond to the increase in Social Security taxes. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less. Taxes rose after a 2 percent cut, in place for two years, expired Jan. 1. Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, since consumers drive about 70 percent of economic activity. The ISM is a trade group of supply management professionals. Its index is based on a monthly survey of manufacturing executives.
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