GDP

But that's still weaker than expectations. A group of 27 economists surveyed by CNNMoney had predicted GDP growth of 3.5%.

"The U.S. economy is finally, after three years, producing as much as it did before the Great Recession hit. But this is by no means 'mission accomplished,'" Economic Policy Institute economist Josh Bivens said in a research note.

"The 3.2% growth registered in the last quarter of 2010 would, if sustained over the next year, provide almost no downward push to the unemployment rate," he said.

The faster pace came mainly on the backs of American consumers, who headed back to the shopping malls during the holiday season. Personal consumption, a measure of consumer spending, jumped by 4.4% in the fourth quarter -- the strongest increase in that reading in at least four years.

"Consumer spending had an outstanding quarter," said Scott Brown, chief economist with Raymond James. "While some of that is due to a drop in the savings rate -- which isn't really sustainable -- it could also be a sign that consumers are less worried about losing their jobs."

Spending on so-called durable goods like cars and furniture rose a whopping 21.6%. Spending on nondurable goods like food and clothing was up 5%.

While the U.S. is struggling with a massive trade deficit, it improved slightly in the fourth quarter, lifting the overall GDP number. Exports increased at a rate of 8.5%, while imports decreased by 13.6% -- slightly narrowing the trade gap.

Not all cylinders of the economy were firing away though.

0:00/1:59State of the Economy (in 2 mins)

A slower pace of business inventories was the main drag on the overall number. Private businesses increased inventories by $7.2 billion in the fourth quarter, a stark contrast to $121.4 billion in the third quarter and $68.8 billion in the second.

Commercial and residential construction activity also decelerated significantly.

The government calculates GDP as a measure of goods and services produced in the United States. The number is backward looking and is often revised multiple times. This is the first reading for the fourth quarter.

For the year as a whole, real GDP was up 2.9%, a complete turnaround from the 2.6% decrease seen in 2009.  

Car sales indicate a strong OctoberGDP

Relax, Libya oil crisis is no big deal - watchdog

Gauging the market reaction, it appears Tanaka's message has fallen on deaf ears.

U.S. crude spiked over 7% Tuesday to $96.48 a barrel as violence swept Libya and traders fretted over the stability of other large oil producing countries in the Middle East.

Tanaka is right -- the world should be able to deal with a disruption of Libyan crude.

Libya produces about 1.6 million barrels a day; a sizable amount but just a fraction of the world's overall 87.5 million barrel-a-day appetite.

Ordinarily, if oil supplies were tight, a 1.6 million barrel-a-day disruption would certainly be a problem.

Libya: Why the oil market is nervous

But the recession has left oil stockpiles near all-time highs. Oil stockpiles are crude supplies owned by oil companies, distributors or refiners that are stored in on-shore tank farms or offshore on ships.

In the United States alone, stockpiles stand at 345 million barrels. That's far above the usual amount, according to the Energy Information Agency.

Then there are the strategic petroleum reserves -- the 1.6 billion barrels of oil referred to by IEA's Tanaka. These are of oil reserves owned and stored by industrialized nations around the world.

0:00/5:04Oil spike: '99% Libya'

In the U.S., it consists of over 700 million barrels of oil stored deep underground in man-made salt caverns in Texas and Louisiana.

Formed after the Arab oil embargo in the early 1970s which crippled oil dependent nations around the world, IEA coordinates with member countries to move these stockpiles around to cover shortages and prevent price spikes.

The stockpiles are designed to provide temporary coverage until additional oil production capacity can be brought online. Turning on the taps and shipping the oil to market might take a month or so.

Currently, almost all additional production capacity lies in Saudi Arabia. The Saudi's are said to be able to pump an additional 4 million barrels a day. That's more than enough to cover a shortage from Libya.

What really has traders nervous, and is likely a driving factor behind Tuesday's oil price spike is if the violence spreads to Saudi Arabia. If that happens it'll be more than just Saudi spare oil at stake -- their massive 8 million barrel per day output could be at risk as well.  

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Home prices near 2009 lows -- and may fall more

"Despite improvements in the overall economy, housing continues to drift lower and weaker," said David Blitzer, spokesman for S&P.

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.

"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

Shiller cited a few reasons for his bearish stance.The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.

Can the Saudis really ride to the rescue?

There's also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.

0:00/5:20Filling Fannie and Freddie's shoes

At the web conference, Shiller's index partner Karl Case wasn't much more optimistic.

"I see [the market] bouncing along the bottom with a slight negative trend," said Case, an economics professor emeritus at Wellesley College.

A widespread drop

On a seasonally adjusted basis, the national index surpassed the low it hit in the first quarter of 2009.

The decline was widespread, with 18 of the 20 large cities covered by a separate S&P/Case-Shiller index recording losses for the year. The only gains were posted by Washington, which was up 4.1%, and San Diego, which saw prices climb 1.7%.

The biggest loser for the year was Detroit, where prices dropped 9.1%.

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"We're really close to being at the bottom again," said S&P's Maureen Maitland. "Last year's gains came courtesy of the tax incentives and the market is not holding up on its own."

The impact of homebuyer tax credits ended back last spring, and the two quarters of data since then reflect that. Prices fell steeply during the third quarter, down 3.3%. When the credit was in effect, prices rose consistently, up four out of five quarters starting in the second quarter of 2009.

S&P reported that both the company's 10- and 20-city indexes also fell month over month. In three cities, Detroit, Cleveland and Las Vegas, home prices have dropped below their January 2000 levels -- yes, you'd have to go back to the past millennium to find lower prices there.

Eleven markets, including New York and Chicago, have reached their lowest levels since home prices peaked in 2006 and 2007.

Grab a second home bargain

The losses were not unexpected, according to Brad Hunter, chief economist for Metrostudy, a housing market research firm.

"It's clear now that, going back to last fall, the apparent strength was a false strength," he said. "Now that the tax credits are gone, we're back to where the training wheels are off, to normal consumer demand."

He expects home prices to decline gradually throughout 2011, with markets picking up only when hiring increases substantially. 

Corker pledges to take role in home loan regulationHome Prices

Unions under fire as states try to curtail benefits

Thousands of Wisconsin's public employees have descended on Madison to protest Gov. Scott Walker's proposal to raise their benefit contributions and limit their collective bargaining ability.

Protests have also erupted in Columbus, Ohio as a bill proposing to eliminate collective bargaining for state workers and public university employees makes its way through the state legislature.

Both states are seeking the flexibility to change employee benefits, and they're not alone.

Health care and pension costs are soaring, making it even harder for public officials nationwide to close massive budget gaps.Forty-four states and Washington, D.C. are facing a total shortfall of $125 billion for fiscal 2012, according to the Center on Budget and Policy Priorities.

In many places, public officials have little leverage to lower these costs because they are set in union contracts. If benefits were removed from the collective bargaining process, states and localities could change them without having to negotiate with the unions, a process that can drag on for months or even years.

"It gives state and local officials more control over the costs of employing government workers," said James Sherk, senior policy analyst in labor economics at The Heritage Institute, a conservative think tank.

Many state and local governments have been leaning on their employees as they look to cut costs and balance their budgets during the Great Recession. Workers, to varying degrees, have made concessions -- taking furloughs or pay freezes and upping their contributions to their health care and retirement benefits.

State officials have long floated so-called right-to-work proposals that would curtail or eliminate union power. But this year, they are getting more traction because Republicans -- who are generally not big fans of unions -- have gained control of more state capitols and governor's mansions.

0:00/2:58Budget crisis: police and fire cuts

For instance, a bill that would end collective bargaining for teachers is currently working its way through the legislature in Tennessee, where Republicans captured the governor's office and took a commanding lead in the house.

And in Indiana, which banned collective bargaining on the state level in 2005, lawmakers are considering a bill to curtail the power of teachers' unions, which are at the local level.

Gov. Walker's controversial proposal

Under Wisconsin Gov. Walker's plan, many state and local workers would pay about 5.8% toward their pension and about 12% of their healthcare benefits. They currently pay little toward their retirement benefits about about 6% of their medical premiums, Walker said.

Walker says these changes would help the state save $30 million in the last three months of the current fiscal year. Wisconsin is facing a $3.6 billion budget deficit for the biennium that starts on July 1, according to the state's Department of Administration.

Even more controversial, Walker is looking to limit collective bargaining for most public employees to wages only. Local law enforcement and fire employees, as well as state troopers and inspectors would be exempt.

That means health care and pension contributions would no longer be subject to contract negotiations, giving state officials greater freedom to raise them.

Governors put state jobs on the chopping block

A bill in Ohio, meanwhile, would not only eliminate collective bargaining but would also make fewer police and firefighters eligible to participate in unions.

Additionally, the Ohio bill would make all public workers pay at least 20% of their health insurance premiums and would eliminate tenure as a consideration when making layoffs. And it would require pay be based on merit for most workers.

Ohio is facing an $8 billion budget shortfall for the coming fiscal year. Gov. John Kasich supports the bill as a way to help stabilize the budgets of the state and localities.

"We need to give our cities, towns and school districts the tools to combat one of their biggest costs -- the cost of labor," said Rob Nichols, his press secretary.

Thousands of teachers and public employees have flocked to Columbus to protest the bill.

"Students need their teachers to focus on them and their classrooms, and allowing the union to represent teachers allows them to do what they do best -- teach," said Philip Hayes, a teacher in Columbus and member of the Ohio Education Association, which sent nearly a thousand school workers to a rally on Thursday.

Concessions from public workers

Given state budget woes, workers' pay and benefits are "an obvious place" to cut back, Sherk said. If employees don't make concessions, state officials will have to cut elsewhere to balance the budget.

"It means there are less tax dollars to fund government services," he said.

But union leaders say that public employees have been giving plenty throughout the recession. Many states have effectively cut pay by instituting furloughs and workers have been contributing more to their benefits.

In California, for instance, workers agreed last year to contribute 10% of their pay to their pensions, up from 5%, said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees. Ohio public employees made $250 million in concessions in 2008, including an increase in their health care contributions.

"Public employees, through their unions, are making sacrifices," Kreisberg said. "Any argument that workers are not willing to make concessions is clearly not demonstrated by the facts." 

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Government shutdown: What's at stake

It's difficult to predict how the current government would respond to a shutdown, because each federal agency is responsible for crafting and updating its own "shutdown plan."

Those plans are not made public. But the past offers some clues.

The last time the federal government went dark was for five days in November 1995 and another 21 days, ending in January 1996, during the Clinton administration.

As a result, the government closed 368 National Park Service sites, along with national museums and monuments, according to a Congressional Research Service report.

In addition, 200,000 passport applications went unprocessed, and toxic waste cleanup work at 609 sites stopped, according to the same report. The National Institutes of Health stopped accepting new clinical research patients, and services for veterans, including health care, were curtailed.

Debt deal: 'History will condemn us' if U.S. punts

A shutdown would also result in the furlough of hundreds of thousands of federal employees, but the government would keep essential services -- like air traffic control, and the national security apparatus -- in full operating mode.

And yes, the mail will still be delivered.

Still, a large number of federal workers would be asked to stay home.

"When we go into a funding hiatus, this restricts activities ... and agencies are going to trim back the number of people who actually show up at the office," Denise Fantone, director of strategic issues at the Government Accountability Office, told CNNMoney the last time a shutdown seemed likely. "The first thing any agency is going to do is pull out their list of essential personnel."

While on furlough, federal employees won't receive a paycheck, nor would government contractors. Federal employees will eventually receive back pay, but contractors won't be so lucky.

The longer the shutdown goes on, the trickier it gets for agencies to define "essential personnel."

During the last long-term shutdown, the Social Security Administration kept enough staff in place to ensure benefits were paid out, but new claims weren't being processed. As the shutdown wore on, the agency recalled workers to start processing new claims.

What has to happen

With Congress in recess this week, lawmakers will have only four working days to pass a spending bill before the current temporary measure expires.

The good news, if you can call it that, is that Congress has come down to the wire many times before and has usually managed to pass a funding bill.

The starting point for negotiations is a bill approved by the House just before dawn on Saturday that would cut $60 billion in federal spending for the current fiscal year.

But that bill would set spending below levels acceptable to Democrats. President Obama said last week he would veto the House measure should it reach his desk.

0:00/05:05Roubini: Avoid a 'fiscal train wreck'

If lawmakers can't strike a long-term deal that both Senate Democrats and conservative House Republicans will go along with, Congress might resort to passing another short-term measure that would fund the government while negotiations continue on a deal for the rest of the fiscal year.

Typically, lawmakers pass 12 appropriation bills for the president's approval. Those bills give federal agencies the legal authority to spend and conduct business.

This year, not one of the 12 has been approved by the Senate, and Congress has instead relied on short-term measures called "continuing resolutions" in order to fund the government. 

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Chintzy T-shirts and fake pockets hot in 2011

Some companies are taking creative approaches to use less cotton.

"T-shirts may get thinner," said Chris Callieri, principal with A.T. Kearney's retail and consumer practice.

Callieri said some of his clients are playing around with the "density" of cotton fabric, to see how they can use less of it. "But you have to be careful with that approach so that it doesn't affect the quality of the garment," he said.

Another creative tweak is using "fake" pockets.

"You can reduce the size of a garment, but add embroidery and buttons. This can reduce cotton costs as well," Callieri said.

The cotton crunch is also bringing back the go-to fabric of the 70s, polyester.

But before you break into a sweat at the idea of shiny disco shirts and skin-tight trousers hanging at your neighborhood Macy's (M, Fortune 500) this summer, Callieri said retailers are experimenting with blended fabric, such as a poly-cotton mix, to replace pure-cotton offerings.

The cotton crunch is hitting the bedding and linen industry particularly hard since consumers generally favor 100%-cotton sheets.

"What has more cotton than the bedsheet that you slept on last night?" said Andrew Tananbaum, CEO of Capital Business Credit, which provides financing to suppliers who cater to bedding and clothing retailers in the U.S.

0:00/2:14Rising cotton trims rag trade

But companies are now warming up to using blended fabric.

Tananbaum said high thread count poly-cotton blended sheets are about 30% cheaper than comparable all-cotton sheets. The lower price could convince cotton purists to at least try the product and save some money.

"Instead of paying $100 for an 800-thread count all-cotton sheet set, you pay $70 for the same thread count." he said. "So it's cheaper, but the quality is still the same."

Another subtle way retailers will look to keep prices steady is by repackaging cotton products differently. While it won't seem like consumers are paying more, the repackaging will still come at some cost to them.

The most obvious example is with multipacks of cotton undershirts and socks that could shrink from five a pack to three a pack, said Marshal Cohen, chief retail analyst with NPD Group.

Ultimately, Cohen said the bottom line for consumers is that retailers can try to shield them from price increases through these methods but they won't be able to do it forever.

"No one knows when this trend is going to stop. Maybe the only thing that will stop it is if consumer demand for cotton items cools." said Phil Flynn, senior market and commodities analyst with PFG Best.  

Big retailers tailor outlets to shoppers’ frugal tastesRetail Sales

Debt deal: 'History will condemn us' if U.S. punts

Conrad liked some elements. He made clear that he likes how the president's budget would get annual deficits down to 3% of the economy by 2017, down from 10% today.

At that level, the nation's total debt level is considered "stable," provided the economy grows by at least 3% every year.

The problem, Conrad said, is that the president's budget would do nothing to bring gross debt down below 100% of GDP, above which it will be for the next decade.

Gross debt includes both Treasury bonds and money owed to government trust funds, such as those for Social Security and Medicare. As debt mounts above 90%, it impedes economic growth, according to some research.

Lew, under whom the country booked annual surpluses when he was President Clinton's budget director, knows very well the perils of too much debt and is respected for his fiscal acumen.

But he stressed during the hearing that the president's budget is intended as a down payment on debt reduction.

Running the government on 8 cents

Indeed, both the president and Lew have said that they don't believe it would have moved the ball forward if Obama had actually included in his budget a hard-and-fast plan for comprehensive debt reduction, including Medicare and Social Security reform.

"If you look at the last 20, 30 years, sometimes putting out a proposal slows things down because it polarizes the sides as they dug in. We need to figure out a way to have a conversation that gets the parties talking together," Lew said. But, he added, "I can't give you a date or a time."

That answer did not sit well with Conrad.

"I hear the reasons for doing the budget proposal that is out there. ... But I can't accept it if I don't hear a way forward ... because it cannot be the answer that we're going to have debt over 100% of GDP ... That cannot be the answer for this country's fiscal future," he said.

0:00/8:30Who feels the pain in Obama's budget

Conrad, who sat on the president's bipartisan debt commission and has endorsed that group's proposals to reduce deficits by $4 trillion by 2021, has been calling for a fiscal summit to hammer out a long-term plan for debt reduction. He wants the summit to occur before Congress faces a vote to increase the country's legal debt limit, which likely will occur by May.

He's also mindful that the window for earnest negotiations will close quickly in the run-up to the 2012 presidential election.

"The administration has a big responsibility to help us understand their vision of how this process comes together. Sometime very soon there is going to have to be a negotiation that involves the leadership of the House and the Senate and the White House," Conrad said.

Meanwhile, there were a lot of references early this week to the prospect for closed-door negotiations. The president in a press conference said "we're going to be in discussions over the next several months." Senate Republican Leader Mitch McConnell said, " we all understand there are some limitations to negotiating significant agreement in public."

And former senator Alan Simpson, who co-chaired the president's debt commission, said on CNN Monday that when it comes to a debt-reduction deal, "they'll do it in a way that's unseen by the American public." 

The war over spendingGAC promotes Sarah Trahern to general manager