U.S. Economic Downturn Worsened at End of 2008
From October to December, the gross domestic product — which measures the total output of goods and services within U.S. borders — shrank at a higher annual rate than previously estimated at 6.3 percent, and profits dropped 16.5 percent from the prior quarter, the most since 1953, Bloomberg News reported.
The government last month estimated the fall in fourth-quarter GDP at 6.2 percent.
Facing rising unemployment, falling home values and shrinking investment portfolios, businesses and consumers are curtailing purchases and leading companies to slash production and jobs.
The negative forces are feeding on each other in a vicious cycle that has deepened the recession, now in its second year.
Also Thursday, the Labor Department reported that new claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week’s revised figure of 644,000.
The total number of people claiming benefits jumped to 5.56 million, higher than economists’ projections of 5.48 million, and a ninth straight record-high, according to the Associated Press.
“It’s a pretty dismal result,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto, according to Bloomberg News. “Given the slight improvement we’re seeing in some of the recent indicators, I suspect the first quarter will be a little better than the fourth.”
“I think people realize the economy seemingly fell off the cliff in the fourth quarter and continued in the first quarter this year. The question now is will you see a moderation in bad news?” said Doug Bender, managing director at McQueen, Ball & Associates in Bethlehem, Pa., quoted Reuters.
The economy grew 1.1 percent for all of 2008, the same as previously estimated, as exports and government tax rebates in the first six months helped offset the slump in consumer spending that followed.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 4.3 percent pace last quarter, marking the first back-to-back decreases in excess of 3 percent since record-keeping began in 1947, Bloomberg News reported.
Retailers are faring better this year: Sales fell less than forecast in February and January’s 1.8 percent gain was the biggest in three years, the Commerce Department reported earlier this month.
Federal Reserve Chairman Ben Bernanke said the recession could end this year, setting the stage for a recovery next year only if shaky financial markets are stabilized, reported the AP.