GDP shrank at 6.2% rate in late 2008
WASHINGTON — The depth of the recession became much clearer Friday as the federal government announced that the economy shrank at a dramatic 6.2% pace in the final three months of last year, the country’s worst economic performance since 1982.
The Commerce Department sharply revised its earlier estimate of a 3.8% contraction in gross domestic product, the value of all goods and services produced. That initial figure was more optimistic than the 5% to 6% drop most economists had predicted.
Given those forecasts, Friday’s announcement wasn’t very surprising, said Diane Swonk, chief economist of Mesirow Financial. But it still was sobering, she said.
“It’s one thing to know reality. It’s another thing to actually be faced with it,” she said.
The new data reflect large drops in consumer and business spending as well as U.S. exports.
“Private spending on all fronts is plunging,” said Nigel Gault, chief U.S. economist for IHS Global Insight. “It was plunging in the fourth quarter, and we think it will continue to fall very steeply in the first quarter.”
Personal consumption expenditures dropped 4.3% in the fourth quarter, compared with a 3.8% drop in the third. Nonresidential fixed investment decreased 21.1% after falling only 1.7% in the third quarter. Purchases of equipment and software fell 28.8%, compared with a 7.5% drop in the third quarter. And U.S. exports dropped 22.2%, compared with 16% in the previous quarter.
The only major sector to boost spending was the federal government. Its outlays were up 6.7%, highlighting the key role U.S. officials are playing in trying to keep the economy afloat, Gault said.
“It’s the only borrower that people feel comfortable lending to at the moment,” he said.
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