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Kudlow: Spending Sequester Will Grow Private Economy
CNBC.com | January 30, 2013 | 05:06 PM EST

Wednesday's report of a 0.1 percent gross domestic product decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy.

Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in, the domestic private sector of the economy increased 3.4 percent annually—a very respectable gain.

(Read More: The 'Best-Looking' GDP Drop You'll Ever See .)

And here's one for the record books: Working ahead of year-end tax hikes, individuals shifted so much money to the fourth quarter at the 35 percent top rate that personal income grew by 7.9 percent annually—a huge number. And there's more: In order to beat the tax man, dividend income rose 85.2 percent annually. You think tax incentives don't matter? Guess again.

(Read More: Federal Reserve to Continue Stimulus Amid Signs of Weak Economy )

Now, all this private-sector strength occurred despite the fact that government spending—namely military spending—dropped 6.6 percent. Inventories also lost ground and the trade deficit widened.

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