U.S. Economy Shrinks at Fastest Rate in 26 Years
The numbers provide the starkest evidence yet of the toll that the credit crisis and real estate downturn have taken on the economy.
The gross domestic product — a value of all the goods and services produced in the U.S. — shrank at a 3.8 percent annual rate, the worst performance since the recession of 1982. The only bright spot was that the contraction was not as severe as the 5.5 percent some economists had expected.
The GDP numbers followed another grim week of economic news. The Labor Department announced Thursday that jobless claims jumped more than expected to 4.8 million for the week ending Jan. 17. Also on Thursday, Ford Motor Co. announced massive fourth-quarter losses. Sales of new homes in December plummeted, and are down nearly 45 percent from last December.
Job cuts are beginning to take a toll across industries — Microsoft, Starbucks, Sprint, Home Depot, 3M, Eastman Kodak and AstraZeneca are among the many companies that have announced layoffs in the past few weeks.
“Everybody, established corporations are pulling in the horns and trying to weather the storm,” John Ryding, chief economist for research firm RDQ Economics, told the Washington Post.
The grim news continued worldwide. On Friday, the Japanese government announced that joblessness had risen to 4.4 percent, the largest increase in 41 years.
The news has provided a sense of urgency for lawmakers working on President Obama’s stimulus package, which is working its way through Congress now. The $819 billion plan of spending and tax cuts passed the House Wednesday with no Republican support.
President Obama is lobbying for more bipartisan support in the Senate.
“This widespread decline emphasizes that the problems that began in our housing and financial sector have spread to nearly all areas of the economy,” Christina Romer, chair of President Obama’s Council of Economic Advisors, said in a statement. “Immediate action to support both the financial sector and overall demand is essential.”
But some economists worry that even if the plan passes, it will be difficult to put the spending programs in place as quickly as they’re needed.
“You’d like to be able to inject a huge amount of stimulus very quickly” IHS Global Insight economist Nigel Gault told the New York Times. “But how practically can that be done? Practically speaking, you can’t spend the money that fast.”