Economy shrank at fastest clip since '82
http://www.msnbc.msn.com/id/28930809/
WASHINGTON - The economy shrank at a 3.8 percent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending. The White House was bracing for bad news. On the eve of the report's release, press secretary Robert Gibbs thought the fourth-quarter results would be "fairly staggering." The report tallies gross domestic product, the value of all goods and services produced within the United States. It is considered the broadest barometer of the country's economic health.
"The report provided clear evidence of the economy's rapid deterioration as the housing, credit and financial crises — the worst since the 1930s — feed on each other. It's a vicious cycle that has proven difficult for Washington policymakers to break. ...
"The 3.8 percent annualized drop marked the weakest quarterly showing since a 6.4 percent annualized plunge in the first quarter of 1982, when the country was suffering through a severe recession. ...
"For all of 2008, the economy grew by just 1.3 percent. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001. ...
"A massive pullback by consumers is expected to play a prominent role in the economy's worsening backslide. They are cutting back on spending as jobs disappear and major investments — homes, stocks, retirement accounts — tank in value. Businesses are retrenching, too, as profits shrivel and demand wanes from customers in the U.S. and overseas. ...
"A 7.1 percent annualized cutback in spending on "nondurables," such as food and clothing was the deepest since the end of 1950. ...
Americans newfound frugality was clearly visible. The savings rate rose to 2.9 percent in the fourth quarter. That was up from 1.2 percent in the third quarter and matched the rate in early 2002 when the country was still struggling to get back to full economic health after the 2001 recession.
Big cutbacks by homebuilders — reeling from the collapsed housing market — and other companies also figured into the fourth-quarter weakness. Homebuilders slashed spending at a 23.6 percent pace, even deeper than the 16 percent annualized cut in the prior three months.
Spending by businesses on equipment and software dropped at a whopping 27.8 percent annualized pace in the fourth quarter, the most since early 1958.
"The unemployment rate jumped to a 16-year high of 7.2 percent in December and could hit 10 percent or higher at the end of this year or early next year. A staggering 2.6 million jobs were lost last year, the most since 1945, though the labor force has grown significantly since then.
"Another 2 million or more jobs will vanish this year, economists predict. . .
This week alone, tens of thousands of new layoffs were announced by companies including Ford Motor Co., Eastman Kodak Co., Black & Decker Corp., Boeing Co., Pfizer Inc., Caterpillar Inc., Home Depot Inc. and Target Corp.
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