Government Data Shows Recession Deepening
RENEE MONTAGNE, host:
NPR's business news starts with the shrinking American economy.
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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.