BY ANNYS SHIN
The U.S. economy shrank by a larger-than-expected annualized rate of 6.2 percent during the final three months of 2008, the worst showing in about 25 years, according to a revised government estimate out today.
The new estimate of the fourth-quarter gross domestic product from the Commerce Department is far worse than the initial estimate of negative 3.8 percent, and also larger than the 5 percent drop in growth most analysts had anticipated.
It’s the largest contraction in one quarter since the first quarter of 1982, when the economy shrank by 6.4 percent.
The updated number is based on more complete information than was available for the earlier estimate. It reflects a much larger drop in exports, spending on equipment and software and residential housing investment. The only major boost came from a decline in imports, which are a subtraction in the calculation of the GDP.
Nearly every segment of the economy contracted sharply during the fourth quarter, the data show. Consumer spending fell 4.3 percent, compared with 3.8 percent in the third quarter. Investment in office buildings, shopping centers and other nonresidential structures sank 5.9 percent, compared with an increase of 9.7 percent in the previous quarter. Real exports of goods and services plummeted 23.6 percent, compared with an increase of 3 percent in the third quarter.
As tax revenue plunged, state and local government spending also fell 1.4 percent, after rising 1.3 percent in the period from July through October. For all of 2008, the economy grew 1.1 percent, in contrast to an increase of 2 percent in 2007.
This morning’s news follows a report yesterday that orders for autos, appliances and other durable goods plummeted for the sixth month in a row in January and the number of first-time claims for unemployment benefits shot up unexpectedly last week, intensifying fears about the economy’s rocky descent.
Just a few months ago, analysts had been forecasting that the final months of 2008 would be the worst of the recession and that the first quarter of the new year would bring a slight improvement. Now, however, the first quarter is shaping up as a contender for the title of “recession’s worst.”
“I’ve been pretty pessimistic all along, but [the numbers] came in worse than I expected, and that’s pretty bad,” Dean Baker, an economist with the Center for Economic Policy and Research, said yesterday. “You worry this is just a free fall.”
Businesses have slashed production sharply and put off buying new equipment and technology to bring output in line with the sudden fall in demand, according to Commerce Department data released yesterday. But the numbers indicate companies haven’t been able to cut fast enough.
Inventories fell in January for the first time in 16 months by 0.8 percent, a sign that businesses have started to shrink stockpiles of unsold goods. But sales still fell faster than inventory levels.
New orders for autos, washing machines and other items built to last at least three years fell 5.2 percent in January, compared with a drop of 4.6 percent in December. The biggest decline came in orders for defense spending. In previous months falling auto sales were the main culprit. Excluding defense spending, which can vary widely month-to-month, durable goods orders fell 2.3 percent.
Production cuts led to job cuts, driving up unemployment rolls. The number of first-time jobless claims rose to 667,000 last week, an increase of 36,000 from the previous week.
Meanwhile, consumer confidence data out this morning show a decline in February to 56.3 down from 61.2 in January, according to Reuters/University of Michigan Surveys of Consumers. Few consumers now expect the recession to end anytime soon despite the new economic stimulus package, according to the survey. “More consumers than at any other time in the past fifty years have voiced their concerns about the deepening recession and rising unemployment,” Richard Curtin, director of the survey, said in a statement.
The economic news comes after yesterday’s report on jobless claims, which showed that the number of people on unemployment climbed, partly because of an extension of benefits in several states. As of Feb. 14, 5.1 million people were collecting unemployment, an increase of 114,000 from the previous week. The unemployment rate nationwide is 7.6 percent.
Meanwhile, the downturn in the housing market, now in its third year, appears to be accelerating even though houses have become more affordable, according to data released yesterday by the departments of Commerce and Housing and Urban Development.
Builders slashed prices to try to lure buyers. The median price of a new single family home in January was $201,100, 13.5 percent lower than it was a year earlier. The Federal Reserve has also sought to keep mortgage rates low. Yet, sales of new homes fell more than expected in January to a seasonally adjusted annual rate of 309,000. That is a decline of more than 48 percent compared with January 2008. It would take 13.3 months to sell the existing inventory of new homes, another record.
“Better affordability is being offset by tighter credit conditions, a rapidly deteriorating economy and people’s uncertainty about their economic situation,” said Abiel Reinhart, an economist with J.P. Morgan Chase. “Many people are saying, ‘I’m going to wait to buy.’ ”
See Related: ECONOMIC CRISIS
We will couple your advertising campaign
with our high net readership.
Ask about our new customer incentive program
to work within your budget!
Seven Day Ad Duration – $25