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Economy Shrank 6.2% at End of 2008, Fastest Since 1982

BY Admin  February 27, 2009 at 11:25 AM EST

Port of Long Beach; Photo from Flickr.com/ethanz

The revised reading of the U.S. gross domestic product, an indicator of national output confirmed that the country’s economic crisis accelerated in the fourth quarter.

“It’s just doom all over. There’s nothing good to take away from this report. I think there’s a few more bad quarters to come,” Boris Schlossberg, director of currency research at GFT Forex in New York, told Reuters.

The Commerce Department report was much bleaker than the 5.4 percent annualized decline economists expected and higher than the 3.8 percent drop estimated last month.

In the fourth quarter, consumer spending, which makes up more than two-thirds of domestic economic activity, fell at a 4.3 percent pace. Businesses held off on purchasing equipment and software, causing spending to fall at an annualized rate of 28.8 percent in the fourth quarter.

Economists predict that these cuts will continue and the first six months of 2009 will continue to be rocky.

“Right now we’re in the period of maximum recession stress, where the big cuts are being made,” economist Ken Mayland, president of ClearView Economics, told the Associated Press.

Also contributing to the drop in GDP is fall in U.S. exports as economic troubles abroad lead to decreased demands for U.S goods and services.

The head of the United Nations Conference on Trade and Development said Friday that the world economy will shrink at least 1 percent this year.

In turn, companies are slashing production and cutting payrolls. The U.S. unemployment rates stands at 7.6 percent, its highest in more than 16 years.

The 6.2 percent drop marks the fastest decline since the first quarter of 1982. Economists expect a smaller drop for the second quarter of the year.

In response, the S&P 500 index dropped below its November trading low reached at the height of the credit crisis.

Federal Reserve Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a “severe contraction” and is likely to keep shrinking in the fix six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.

Wall Street stumbled in early trading Friday on the GDP reading and as investors second-guessed Citigroup Inc.’s plans to turn over a big piece of itself to the government. The Dow Jones industrial average, the Standard & Poor’s 500 index and the Nasdaq composite index began the trading day down more than 1.25 percent each, but all regained some losses after the first hour of trading with the Nasdaq inching into positive territory.