GDP Falls To 1982 Levels

The economy is performing at its lowest level since 1982 according to fourth quarter GDP information. We explore why the numbers may be a bit deceptive and what this means for the nation's economic future.

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MADELEINE BRAND, host:

From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.

ALEX COHEN, host:

And I'm Alex Cohen. Coming up, the Grand Old Party sets its agenda. We hear a conversation about the future of Republican leadership.

BRAND: But first, let me tell you something you already know. The economy is doing really badly. And today, official confirmation - the end-of-year fourth-quarter gross domestic product fell to its lowest level since 1982. And for you 20-somethings out there who weren't even alive then, that was when Ronald Reagan was in the White House and E.T. was a big movie star. NPR's Jim Zarroli is here now. And Jim, I know you're not a 20-something. So, (Laughing) you can put this all into perspective.

JIM ZARROLI: Oh, Madeleine, that hurts.

BRAND: I know, I know. But - so the GDP fell in the fourth quarter to this annual rate of 3.8 percent. What does that mean?

ZARROLI: It means that the economy shrank at an annual rate of 3.8 percent during the last three months of the year. Those numbers may be a little bit deceptive because when the government measures GDP, which is the measure of all the goods and services produced in the country, it includes things that were produced even if they weren't used or consumed, even if, you know, a company made products that just ended up sitting on store shelves. If you look at - if you factor in consumption, the numbers actually point to a much weaker growth rate last quarter, maybe along the lines of five, 5.1 percent. So, the numbers may suggest that things weren't as bad as they actually were.

BRAND: And meanwhile, what are economists saying? Because, you know, this is not just these numbers today, there've been a whole string of bad numbers out this week. We have the number of people filing unemployment claims at an all-time high, sales of new homes falling to an all-time low. What are economists' reactions to all these statistics?

ZARROLI: Well, I think they're saying that you're really seeing the effects of the recession hit full-force. The slowdown is really here. It's taking effect. Some of the individual numbers in this report were really disturbing. Consumer spending down three and a half percent, but spending on durable goods - things like cars and furniture and appliances - really down very sharply, 22 percent. Business investment - you know, companies spending on new factories and computer equipment, things like that - fell by about 19 percent, which was the worst number since 1975. Really, we just saw a sharp pullback on just about every front.

BRAND: And that number that you mentioned earlier about businesses not spending on big ticket items - doesn't that indicate that they have a pretty grim outlook for the future, at least for the immediate future?

ZARROLI: Yeah, I think so. I think it's very worrying. The buildup in inventories - you know, if companies have a lot of products on their shelves that they're not selling, you know, they're not going to make more products, which means, you know, they'll have less need for workers, less need for raw materials, unemployment is going to go up. And, of course, you know, with more people unemployed, they can't buy as much, so that just prolongs the downturn.

BRAND: And so, does this report say anything about when we can see an upturn or when they expect an upturn?

ZARROLI: One of the things that the report says is that inflation fell at an annual rate of five and a half percent. Now, that's mostly because of energy prices going down. But even when you take that out, prices rose six-tenths of a percentage point, which is just not very much inflation at all. We're really seeing inflation moderating which, you know, I suppose is good news if you have a job and can count on a steady paycheck.

BRAND: Yeah and can actually afford to buy things. So, I guess economists really want us to go out and spend if we have the money and the job security, right?

ZARROLI: Yeah, that's the point of the stimulus buildup that Congress and the White House are now working on. They want to find ways to get people employed so they go out, they buy products, which will lead to, you know, more hiring, fewer layoffs.

BRAND: And a higher GDP number. NPR's Jim Zarroli covering finance from New York. Thanks, Jim.

ZARROLI: You're welcome.

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