Sun, Mar 01, 2009 - Page 1 News List

US economy contracts 6.2 percent

AFP , WASHINGTON

The US economy contracted a stronger-than-expected 6.2 percent in the fourth quarter, government data showed, highlighting the stunning meltdown in activity late last year.

The Commerce Department reading on GDP, the broadest measure of output, was far worse than the minus 5.4 percent annual rate expected by most analysts.

The grim number underscored the challenges facing US President Barack Obama, who took office nearly six weeks ago amid the most severe economic crisis since the Great Depression, with no clear sign of recovery in sight.

“We are in the midst of the worst economic storm of the last half century — and it keeps getting worse,” said Nariman Behravesh, chief economist at IHS Global Insight.

The fourth-quarter contraction was the sharpest since the first quarter of 1982, the data showed, and came as the world’s largest economy was winding up a full year of recession.

The revised Commerce Department estimate of GDP marked a stunning 2.4 percentage point change from an initial 3.8 percent contraction.

Obama has moved swiftly to put economic recovery at the top of his agenda. The Democratic president injected a US$787 billion stimulus into the moribund economy last week and on Thursday unveiled an unprecedented US$3.55 trillion budget plan that shifts government spending into high gear.

News of the sharper-than-­expected contraction in the fourth quarter stoked fears about the depth and duration of the recession and doubts about the government’s ability to get the economy back on track.

“While this data is essentially old news, seeing that we’re two-thirds of the way through the first quarter, it still resonates as a startling reminder of how quickly things turned down in the fourth quarter. Unfortunately, the trends for the first quarter don’t paint a much better picture,” Patrick O’Hare at Briefing.com said.

The Commerce Department said the revisions were broad-based but led by three pillars of the economy: consumer spending, which drives two-thirds of activity, exports and inventory investment.

Boosting the economy was federal government spending and investment, which rose 6.7 percent in the fourth quarter after a 13.8 percent rise in the third.

US exports of goods and services plunged 23.6 percent in the October to December period after an increase of 3 percent in the third quarter.

The sharp contraction was partially offset by a 16 percent decrease in imports as consumers and businesses curbed spending amid rising unemployment, tight credit and turbulence on financial markets.

Consumer spending dropped 4.3 percent despite discounted year-end holiday sales, building on a decrease of 3.8 percent in the third quarter.

Spending on equipment and software fell 28.8 percent from a 7.5 percent drop in the prior quarter.

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