Government Data Shows Recession Deepening

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The Commerce Department reports the economy had its worst showing in a quarter-century. U.S. gross domestic product dropped at a 3.8 percent annual rate in the last three months of 2008. The GDP report shows the grim toll of the housing, credit and financial crises.

RENEE MONTAGNE, host:

NPR's business news starts with the shrinking American economy.

(Soundbite of music)

MONTAGNE: The U.S. economy turned in its worst economic performance in more than a quarter of a century in the last three months of 2008. That's according to a report from the Commerce Department this morning. The gross domestic product, or the output of all goods and services in the economy, contracted at an annual rate of 3.8 percent. NPR's John Ydstie joins us to talk about it, and John, economists had predicted the report would show a 5.5 percent decline in economic output. So, it turned out not that bad or - so, could you call this a good sign?

JOHN YDSTIE: You know, I don't think it changes the overall situation very much. After all, this is the first estimate; it'll be revised a couple of times in the next few months, quite possibly down. There was a big build-up in unsold inventories during the quarter. That means businesses have lots of goods already on hand to sell off. That means factory work will probably slow down even further in the coming months.

MONTAGNE: So, is that part of the reason we're seeing layoffs in companies like Caterpillar, which has been quite successful until recently, and Boeing this week?

YDSTIE: That's right. They're anticipating even less demand for their products in the coming months, because the world economy is also deteriorating rapidly. It's interesting to note that this GDP report showed the U.S. economy actually grew 1.3 percent for all of last year, but then had a big drop-off in the last quarter. And that's largely because, even though U.S. consumers were getting stingier all through the year, the overall U.S. economy was being kept afloat by exports because China and India and other parts of the world were buying our products. But in the last quarter of 2008, the demand from the rest of the world dried up as they began to be affected by this financial crisis as well.

MONTAGNE: Is this the worst quarter that we're going to see? I'm going to ask you to predict if we've hit bottom.

YDSTIE: You know, I don't think many observers would be willing to say that, even though we hit some pretty negative milestones in October, November and December of last year. For instance, consumer spending fell by about 3 and a half percent, after having fallen by about the same amount in the previous quarter. That's the first time since they began keeping records back in 1947 that consumer spending has fallen more than 3 percent in two consecutive quarters. But there's no sign consumer spending is picking up right now. In fact, there are signs that the decline in the economy continues to accelerate, as more and more companies - from Boeing to Starbucks - announce layoffs.

MONTAGNE: NPR's John Ydstie, thanks very much.

YDSTIE: You're welcome, Renee.

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U.S. GDP Falls At 3.8 Percent Pace In 4th Quarter

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The U.S. economy shrank at an annual rate of 3.8 percent in the last three months of 2008 as factory production ground down, department stores slashed prices and virtually every sector of the economy bled jobs, the Commerce Department reported Friday.

The quarterly calculation on gross domestic product was the worst since the first quarter of 1982, when the economy contracted by 6.4 percent amid another recession.

The figure showed how rapidly the economy was contracting. In the previous quarter, the economy slipped 0.5 percent.

For all of 2008, GDP rose 1.3 percent, the slowest growth since 2001, when the economy expanded 0.8 percent. In 2007, the GDP increased by 2 percent.

The Commerce report showed consumer spending — which accounts for a whopping two-thirds of U.S. economic activity — fell another 3.5 percent in the fourth quarter after declining 3.8 percent in the third quarter. Spending on durable goods such as cars and furniture plunged 22.4 percent, the steepest decline since the first quarter of 1987.

The grim quarterly GDP was leavened slightly: It is better than economists expected. Economists surveyed before the report were anticipating a 5.4 percent quarterly drop. However, the figure could be revised lower as new survey data are obtained.

What began as a mortgage and credit crisis that hit financial institutions and the construction industry last year has spread quickly to nearly every sector of the economy, from heavy equipment to electronics and pharmaceuticals.

Consumers have responded by cutting back drastically on spending as they worry about holding onto their jobs, making their mortgage payments, and retaining value in their financial investments.

The latest figures will certainly intensify the debate over the Obama administration's economic stimulus package, which passed the House on Thursday on a strict partisan vote. No Republicans signed on to the plan. The Senate is expected to vote on the plan next week.

Christina Romer, the chair of the White House Council of Economic Advisers, said the latest figures show that "immediate action to support both the financial sector and overall demand is essential."

"Aggressive, well-designed fiscal stimulus is critical to reversing this severe decline and putting the economy on the road to recovery and improved long-term growth," she said.

Earlier this week, a survey released by the National Association for Business Economics, or NABE, pointed to the worst business conditions in more than a quarter century and the likelihood of many more job losses in coming months.

From NPR staff and Associated Press reports.

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