US economy shrank 6.2% in 2008 4Q


Posted at Feb 27 2009 11:18 PM | Updated as of Feb 28 2009 07:25 AM

WASHINGTON - The US economy contracted at its sharpest rate since early 1982 in the fourth quarter, revised data showed on Friday, as exports plunged and consumers cut spending by the most in more than 28 years.

The Commerce Department said gross domestic product, which measures the total output of goods and services within US borders, shrank at a revised annual rate of 6.2 percent in the October-December quarter, much steeper than the 3.8 percent fall estimated last month.

The weaker GDP estimate reflected downward revisions to inventories and exports by the department.

US stock index futures extended losses after the report, and the dollar fell against the yen. US government debt prices were steady at higher levels.

"It's just doom all over. There's nothing good to take away from this report. I think there's a few more bad quarters to come," said Boris Schlossberg, director of currency research at GFT Forex in New York.

Prospects for the first quarter are equally bleak with data so far pointing to an acceleration in the economic downturn, now in its 14th month.

The government has intervened with a $787 billion package in spending and tax cuts to staunch the bleeding.

The economy expanded 1.1 percent in 2008, the slowest pace since 2001, the department said.

Consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3 percent rate, the biggest fall since the second quarter of 1980, as household wealth plunged. That compared with a 3.5 percent fall estimated last month.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6 percent annual rate, the steepest plunge since 1971. That was revised from the 19.7 percent drop estimated in last month's report.

Inventories, which minimized the fall in GDP last month after being estimated up a surprising $6.2 billion, were revised to show a $19.9 billion decline in the fourth quarter.

Business investment fell at a 21.1 percent rate, the largest drop since 1975, from a previously estimated 19.1 percent. Residential investment fell 22.2 percent in the fourth quarter.

Companies are aggressively scaling back to cope with a downturn in demand. That is resulting in heavy job losses, piling on the misery for households who are battling with reduced wealth from collapsing housing and stock prices.

The deteriorating economy is dampening inflation pressures, with the personal consumption expenditures price index diving a record 5 percent. Excluding food and energy, prices rose at a 0.8 percent rate in the fourth quarter, the smallest advance since a matching increase in 1997.