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Recession hits the US harder than expected

3 min

In 2008's fourth quarter the United States economy shrunk at a 6.2 % annual rate, according to Commerce Department data. Analysts had expected a decline of 5.4 %. The decline was the worst since the first quarter of 1982.


AFP - The US economy shrank at a 6.2 percent annual pace in the 2008 fourth quarter, government data showed Friday highlighting the stunning meltdown in activity late last year.

The decline was the worst since the first quarter of 1982, the Commerce Department data showed.

The figure was far worse than analysts' consensus forecast of a 5.4 percent rate of decline as the world's largest economy was winding up a full year of recession.

The department's initial estimate of fourth-quarter gross domestic product (GDP) released last month was 2.4 percentage points lower at 3.8 percent.

The steep fourth-quarter contraction followed a 0.5 percent decline in the third quarter; it was the first time of back-to-back quarterly contractions since the 1990-1991 recession.

The Commerce Department said most of the major components of its GDP index declined more than initially estimated for the October-December period, with the revisions led mainly by a trio of declines in exports, consumer spending and inventory investment.

"The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures (PCE), equipment and software, and residential fixed investment that were partly offset by a positive contribution from federal government spending," the Commerce Department said.

"The largest contributors were a downturn in exports and a much larger decrease in equipment and software," it said.

US exports of goods and services plunged 23.6 percent in the October-December period after an increase of 3.0 percent in the third quarter.

The sharp contraction was partially offset by a 16.0 percent decrease in imports, accelerating the 3.5 percent decline in the prior quarter as consumers and businesses sharply curbed spending in the face of mounting economic trouble and a global financial crisis.

Consumer spending, which accounts for two-thirds of US economic activity, dropped 4.3 percent despite deeply discounted year-end holiday sales, building on a decrease of 3.8 percent in the third quarter.

Spending on equipment and software fell off a cliff, down 28.8 percent from a 7.5 percent drop in the prior quarter.

Final sales of computers subtracted 0.01 percentage point from the fourth-quarter change, the same contribution as in the third quarter, the department said.

Prices in the fourth-quarter fell a half percentage point less than previously estimated, at 4.1 percent; they had climbed 4.5 percent in the third quarter. Core inflation, excluding volatile food and energy prices, slowed to a 1.1 percent rate from 2.8 percent in the prior quarter.

Private businesses continued to pare back inventories, shaving another 0.16 percent point from the prior estimate.

Bucking up the economy was federal government spending and investment, which rose 6.7 percent in the fourth quarter after an 13.8 percent rise in the third.

For the full year of 2008, the economy grew at a modest 1.1 percent annualized rate, compared with the prior estimate of 1.3 percent, the data showed. GDP totaled 14.265 trillion dollars.

The 2008 growth pace was the weakest since 2001, when the annual growth rate fell to 0.8 percent. In 2007, GDP rose at a 2.0 percent rate.

The Commerce Department said the major contributors to the 2008 growth were exports, consumer spending for services, federal government spending, nonresidential structures, and state and local government spending.

"The slowdown in real GDP in 2008 primarily reflected a sharp deceleration in PCE, a downturn in equipment and software, and decelerations in exports and in state and local government spending," the department said.

The slump was partly offset by a sharp downturn in imports, an acceleration in federal government spending, and a smaller decrease in private inventory investment.

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