The U.S. economy, locked solidly in reverse gear, posted a massive 6.2 percent contraction at the end of 2008 — its worst showing in a quarter century, the Commerce Department reported Friday. Economists had expected a 5.4 percent drop.
The gross domestic product for the last quarter of the year came in far worse than economists had estimated, underscoring the depth and severity of the recession that has seen consumer spending plummet by more than at any time in 28 years.
"It's significantly worse than what the consensus forecasts of economists have been," Bernard Baumohl, chief economists at the Economic Outlook Group, told NPR. "No one really has a clue when it comes to how severe this recession is."
GDP previously was reported down at a 3.8 percent pace in the fourth quarter. The latest numbers sandbagged gains earlier in 2008 and brought the full-year GDP growth estimate to just 1.1 percent, the slowest expansion since 2001, the Commerce Department said.
Virtually no sector of the economy was spared:
• Consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3 percent rate, its biggest fall since 1980.
• Exports tumbled at a 23.6 percent annual rate, their steepest plunge since 1971. The figure was revised from the 19.7 percent drop estimated in last month's report.
• Inventories, after being estimated up a surprising $6.2 billion, were revised to show a $19.9 billion decline in the fourth quarter.
• Business investment fell at a 21.1 percent rate, the largest drop since 1975, hitting the equipment and software sectors as well as commercial construction.
Companies have been aggressively scaling and cutting workers, adding to a collapse in consumer spending, home values and the stock market. Sales of cars, furniture, appliances and clothes all were down sharply.
"The question at this point is are we looking at a 'lost decade' for the United States economy or are we in the final throes of a recession, the last convulsive stage of an economy that is ready to shake off the imbalances and begin a recovery," Baumohl said.
Economists predict consumers and businesses will keep cutting back in the first six months of 2009.
Unemployment, already at a 16-year high of 7.6 percent, is expected to reach nearly 9 percent by the end of the year, according to the Federal Reserve.
The Commerce Department report comes on the same day the government reached agreement with troubled Citigroup to expand federal rescue efforts for the banking giant by converting $25 billion worth of preferred Citi shares to common stock.
The move would give the government a 36 percent stake in the company, making taxpayers the largest shareholders. It is designed to give Citigroup the cash it needs to stay afloat.
From NPR staff and wire reports