Transcripts

The Nation Gets Its Econ Grade

SUSIE GHARIB: Americans already know the economy is in a deep recession and today the government put a new number on it. The nation's gross domestic product, the broadest measure of economic growth, shrank by 3.8 percent in the final months of 2008. That was the biggest decline in a quarter century. The only good news, the number wasn't as bad as economists had expected. Suzanne Pratt takes a closer look at the details behind that GDP report.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The collective sigh of relief was almost audible on Wall Street today. Many economists had expected a decline in fourth quarter GDP of as much as 6 percent. And while the recession is deepening, economist Jim O'Sullivan says it's important for Americans to maintain some perspective.

JAMES O'SULLIVAN, ECONOMIST, UBS: It's a reminder that this is not the great depression. This is a legitimate recession and it's clearly not over yet. We're going to get more weakness for sure in Q1. But, again this is not the great depression.

PRATT: This may not be as awful as the great depression, but U.S. consumers and businesses cut back on everything in the final three months of last year. And economists say an unwanted buildup in business inventories masked the fourth quarter's real weakness. When inventories are removed from the GDP calculation, the economy would've contracted at a rate of 5.1 percent. Economist Jan Hatzius says with more stuff on the shelves, less stuff will need to be produced in the coming months, which doesn't bode well for GDP.

JAN HATZIUS, CHIEF U.S. ECONOMIST, GOLDMAN SACHS: Another large decline is coming in the first quarter. That's pretty clear. Our estimate is minus 3 percent for the first quarter and the risk to that at this point is definitely on the downside.

PRATT: Nevertheless, many economists say GDP will have bottomed either in Q-4 of last year or will bottom in Q-1 of this year. The recession is expected to continue into the second quarter, but many economists are hopeful that GDP will turn positive in the second half of this year. That forecast is dependent on Washington supplying the economy with a hefty fiscal stimulus package.

HATZIUS: We would prefer if it was larger than it is. But, it is already pretty large. And in terms of the quarterly trajectory of GDP, it is going to give you a sizeable boost.

PRATT: One interesting tidbit in today's GDP report is just how frugal Americans have become. In the fourth quarter, the U.S. savings rate rose to nearly 3 percent. That's among the highest in nearly a decade. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York