Incredible Shrinking Economy

Today's Planet Money is brought to you by the number 3.8.

That's the annualized percentage rate by which the American economy shrank in the last three months of 2008. Gross domestic product, or GDP, fell by less than expected in the fourth quarter. GDP is the sum of all the goods and services produced in this country -- as Adam Davidson likes to say, every cup of coffee bought and every house sold and every last widget made.

MarketWatch says the GDP number would have been worse, except that the government counted "an unwanted buildup of goods on store shelves as growth."

NPR's Jim Zarroli reports that the economy as a whole grew by 1. 8 percent last year, but much of that happened in the first six months.

Deflation-watchers, check the Employment Cost Index. Ian Shepherdon of High Frequency Economics says it rose .5 percent in the fourth quarter, the smallest increase in nearly a decade. He writes:

"Clearly, the steep rise in unemployment and massive pressure on margins is already squeezing costs, and the process has much further to run. The labor market will be a source of disinflation pressure for the foreseeble future."