BY LUCIA MUTIKANI
WASHINGTON – The economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed on Friday, sinking deeper into a recession that the White House said demanded urgent action.
In a report that showed a broad-based contraction across nearly all sectors, the Commerce Department said gross domestic product plummeted at a 3.8 percent annual rate, the biggest drop since the first three months of 1982.
President Barack Obama, who is pushing Congress to approve a package of spending and tax-cut measures that could cost close to $900 billion, said the report highlighted the need for quick government action.
“It’s a continuing disaster for America’s working families,” Obama said of the latest data. “The recession is deepening and the urgency of our economic crisis growing.”
The decline, however, was not as deep as analysts had expected thanks to a $6.2 billion rise in inventories, a development that suggests businesses might ratchet back even more sharply in the first quarter, prolonging the year-old recession.
“Because fourth quarter GDP was supported by a dubious increase in inventories, today’s positive data surprise is a significant burden for the upcoming quarters,” said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.
The sharp drop followed a 0.5 percent pace of decline in the third quarter. It was the first back-to-back quarterly contractions in output since the last quarter of 1990 and the first quarter of 1991.
Major U.S. stock indexes were down over 1 percent on the grim economic news. Prices for U.S. government debt rose. The dollar rose against the euro as the economic news from Europe was even bleaker.
INVENTORIES CUSHION DECLINE
Analysts had expected the economy to shrink at a 5.4 percent pace in the fourth quarter. The shift in inventories added 1.3 percentage points to the change in GDP, meaning the economy would have contract more than 5 percent otherwise.
“There is no good news in this report. I don’t see much in a way of silver lining. This reinforces the notion that we need a massive burst of government stimulus. … This seems to be the only near-term hope,” said William Cheney, chief economist at John Hancock Financial in Boston.
Consumer spending, which accounts for two-thirds of U.S. economic activity, fell at a 3.5 percent rate in the fourth quarter after declining at a 3.8 percent pace in the prior three months. It was the first time consumer spending had contracted for two straight quarters since the period that ended in March 1991.
Falling house prices, coupled with a stock market collapse, tight access to credit and rising unemployment have knocked household wealth, causing a slump in demand.
Spending on durable goods like cars and furniture plunged at a 22.4 percent rate, the steepest decline since early 1987.
Business investment slumped 19.1 percent, the sharpest pull-back since the first quarter of 1975.
Home building also took another heavy hit, plummeting at a 23.6 percent rate, while exports plunged nearly 20 percent, their biggest drop since the third quarter of 1974.
For the year as a whole, GDP rose 1.3 percent, the smallest gain since 2001, the last time the economy was in recession.
Other reports also painted a grim economic picture.
Business activity in New York City fell for a 12th straight month in January, while a gauge of business activity in the Chicago region hit a new low for the current downturn.
PRICES POST RECORD DROP
The economy’s collapse has put a lid on inflation pressures. A consumer price measures in the GDP report plunged at a record 5.5 percent annual rate in the fourth quarter, after a 5 percent rise in the third quarter.
Excluding volatile food and energy items, core prices grew a muted 0.6 percent, the slowest rate since the final three months of 1962.
The weak jobs market has pinched wages and benefits. A report from the Labor Department showed that employment costs rose just 2.6 percent last year, the smallest gain on records that began in 1982.
Alister Bull in Washington, Ros Krasny in Chicago and Burton Frierson in New York, contributed to this report. DISPLAY ADVERTISING CLASSIFIED ADVERTISING
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