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Economy's 6.2 percent fourth-quarter dive worse than predicted

WASHINGTON — The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A smaller decline in the economy is expected for the second quarter of this year. But the new gross domestic product, or GDP, figure — like the old one — marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

For all of 2008, the economy grew by just 1.1 percent, down from a 2 percent gain in 2007, marking the slowest growth since the last recession in 2001.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

"Right now we're in the period of maximum recession stress, where the big cuts are being made," said economist Ken Mayland, president of ClearView Economics.

The new report offered grim proof that the economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding off one another. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter of last year came as the financial crisis — the worst since the 1930s — intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the jobless rate to rise to close to 9 percent this year.

Economy's 6.2 percent fourth-quarter dive worse than predicted 02/27/09 [Last modified: Friday, February 27, 2009 11:11pm]
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