U.S. Economy Shrinks At Staggering Pace

2008 Closed With 6.2 Percent Rate Of Decline As Consumers, Businesses Pinch Pennies

(CBS/AP)  The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending - which accounts for about 70 percent of economic activity - along with a bigger drop in U.S. export sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

In other words, however bad things may have looked, they were actually worse, reports CBS News chief business correspondent Anthony Mason. The dropoff in consumer spending was the worst since 1980. Investment in business equipment notched its biggest decline in more than half a century.

Those statistics raise doubts about the Obama administration's forecast of only 1.2 percent negative growth this year, reports CBS News correspondent Mark Knoller.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

"Right now we're in the period of maximum recession stress, where the big cuts are being made," said economist Ken Mayland, president of ClearView Economics.

"This recession is deepening," economist Lakshman Achuthan told Mason. "We don't have any objective evidence that we've turned the corner yet."

On Wall Street, stocks were down slightly, but rebounded from earlier lows as investors appeared to second-guess Citigroup Inc.'s plans to turn over a bigger piece of itself to the government in a move designed to keep the banking giant alive and bolster its capital in the face of growing losses amid the global recession.

The government shifted its $25 billion investment in Citigroup from preferred to common stock, raising its stake in the company from 8 to 36 percent. Citigroup's share price has tumbled from more than $50 two years ago to $1.50 today.

"Remember, financial firms are based on trust, based on confidence. If you have a stock price trading at a dollar or even below a dollar, that confidence starts to leave," Paul Miller of FBR Capital told Mason. "And if the confidence leaves the franchise starts to suffer. And that's what Citi is fighting right now."

The Dow closed down 119 points, the end of a brutal month. The Dow was down nearly 12 percent in February, its sixth straight losing month, Mason reports.

The new report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter of last year came as the financial crisis - the worst since the 1930s - intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.

Before Friday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter. However, given the fourth quarter's showing and the dismal state of the jobs market, Mayland believes a decline of closer to 6 percent in the current quarter is possible.

The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.

A smaller decline in the economy is expected for the second quarter of this year. But the new GDP figure - like the old one - marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

"It's going to be a challenging 2009," Scott Davis, chief executive officer of global shipping giant UPS, said Thursday while speaking to the U.S. Chamber of Commerce in Washington.

American consumers - spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.

It's creating a self-perpetuating vicious cycle that Washington policymakers are finding hard to break.

To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

For all of 2008, the economy grew by just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

With Friday's figures, Mayland lowered his forecast for this year to show a deeper contraction of just over 2 percent.

In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That also was deeper than first reported and was the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects by 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

Businesses also cut investments in inventories - as they scrambled to reduce stocks in the face of dwindling customer demand - another factor contributing to the weaker fourth-quarter reading. The government last month thought businesses had boosted inventories, which added to gross domestic product, or GDP.

GDP is the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

Fed Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a "severe contraction" and is likely to keep shrinking in the first six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.

Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.

That's partly because many analysts don't think the early stages of any recovery will be vigorous, and because companies won't be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.

More job losses were announced this week. JPMorgan Chase & Co. on Thursday said it would eliminate about 12,000 jobs as it absorbs the operations of failed savings and loan Washington Mutual Inc. That figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.

The NFL said Wednesday that the league dropped 169 jobs through buyouts, layoffs and other reductions. Textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, while jeweler Zale Corp. said it will close 115 stores and eliminate 245 positions.

[skyk-2009]

Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama?s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
Posted by jgg00000008 at 8:32 PM : Feb 27, 2009

Once I bought into these idea but that was before Supply Side Economics showed what it was doing to the nation and to it's people. Now, as I watch and listen to how the Republican's/Conservatives are responding to the American People's desire to change course, I am convinced that they nor anyone connected to them can lead this Country. A lot of Idea's look good on Paper and turn out to be complete failures, this is the case for Supply Side Economics. We need regulation of Business in this nation or greed will most certainly kill us. We need to accept the reality that shifting all the Wealth to the top does not result in those at the bottom having any "Trickle Down" to them, it does not. We need a Republican Party that can accept that reality and join in, from their perspective, to rebuild this nation. So far they have chosen to pretend that, somehow, they can repackage the old ideas, trash George Bush and the American People will give them another chance.

[skyk-2009]

Or we can ignore it and accept the truth, Mr. Obama won the election, and there is nothing the kkk types can do about it, so they might as well evolve to the new day.
Posted by brianbwb-2009 at 4:10 AM : Feb 28, 2009

I agree! They have been a cancer on our society for far to long and now they are actively attempting to do things that we just can not allow.

[brianbwb-2009]

"... You can view the General's official statement on this website:" ... Posted by singinrick09

Or we can ignore it and accept the truth, Mr. Obama won the election, and there is nothing the kkk types can do about it, so they might as well evolve to the new day.

[brianbwb-2009]

"U.S. Economy Shrinks At Staggering Pace"

The logical outcome of Reagan's failed trickle down policies, we knew this day was coming.

Companies, in their search for ever higher profits, forgot their proper place in a healthy society, and layd off their labor in favor of slave labor in other countries. What the idiots forgot was that the workers were the ones buying their products.

Now the automakers, for example, make a product no one can afford, then complain that they need a bailout. Let them rot, the problem is of their own making.

It was cxalled "voodoo economics" for a reason, now that the reason is becoming quite evident, the neos want to point the finger at those of us who knew and said way back then that it would end up like this.

[brianbwb-2009]

"... so you are applauding all of us going broke?" Posted by jgg00000008

We don't care about you going broke, as you didn't care about those who were that way already.

What goes around...

[brianbwb-2009]

"...He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds". Posted by jgg00000008

Good, it is about time those lying, book-cooking thieves got a reality check.

The Gekko character was only half right, Greed is good for only a few, and for only a limited time, then, like sharks in a frenzy when the fish run out, they start eating each other.

You bet on the market, and lost? Tough titz, next time (if you get one) don't be so greedy.

[GODSnLIBERALS]

new world order..decades of conditioning from the liberal media rendered the society incapable to resist..

[singinrick09]

Major General says president's eligibility needs proof
'Most important, what I really want is the truth'

-------------------------------------------------------------------------------
Posted: February 26, 2009
11:40 pm Eastern

By Bob Unruh
© 2009 WorldNetDaily

Retired Maj. Gen. Carroll Childers

On the heels of two active duty members of the U.S. military serving in Iraq calling for President Obama to prove his eligibility to be president, a retired major general has agreed to join the case, saying he just wants "the truth."

Read the rest here:

http://wnd.com/index.php?fa=PAGE.view&pageId=90125

Other sources:

http://www.zimbio.com/Barack+Obama/articles/5323/Army+Major+General+joins+lawsuit+challening

You can view the General's official statement on this website:

http://www.defendourfreedoms.us/

[ubrew12]

... said: "Yes. Obama politics is responsible for the economy. "

Did you read this article? Its that the economy shrunk 6% in 2008!!! Whatever else he's responsible for, I don't think Obama is responsible for shrinking the economy by 6% in 2008.

[rickwar]

When morons like you do not understand the issues ....load is always the best thing for you to get it on your face ....you got better answers invisible monkeyonics...
Posted by shahzad7 at 3:36 PM : Feb 27, 2009

Oh, we understand the issues. Far more than you do.

Socialism has worked nowhere in history. Obama is taking from everyone and bloating government. Obama-Change We Can Believe In - Just look at what he's doing to the economy.

Oh yea, someone commented to me that Obama just took office, so he couldn't have caused all this. Well, if you know a hurricane is coming, do you wait for it to strike before you take action? Only a fool would do so.

Did you hear what Obama was saying during his campaign? Or were you blind sided by Obama Mania? The media was. Yes. Obama politics is responsible for the economy. And 8 years of him won't fix it. EndlessSpending!!!

[suzyku]

The rethugs did this to our country with their failed policies and ideologies! They have no room to complain and whine and few are listening to them anymore. They do need to shut up NOW! They are becoming more and more irrelevant with each passing hour and every time one of them opens up his or her clueless big mouth and empty head! We need to give our new President time to clean up the rethugs mess!

[TPS2]

pythoncharly: The task of protecting the states from invasion falls on the federal government, whether it is a Democrat or Republican majority in Washington D.C. The pendulum swings between the parties; each party experiences setbacks and loses the majority. It has happened before and is sure to happen again. Americans should wish all of the elected leaders well, regardless of political affiliation. If they suceed, we suceed.

[reimer211]

Yeah really.. C'mon. 8 years to get it right, you didn't, republicans... Now, sit down, shut your pieholes, and let's see if this will work. Remember, if Oama fails, as it seems the vast majority of you want, we all fail.

[harbinger19]

Only an IDIOT would keep spending in such a bad economy--when they don't even know if they will have a job in a few months. As for rebates and stimulus--only a bigger idiot would expand or hire in a business right now (even with tax cuts) when you don't even know if there is a reliable consumer base to support your expansion and products.

it is a Catch -22. The only way to restore confidence is to stop the wars and all unnecessary spending and bring mfg and originator products back to American soil.

[TPS2]

Correct Article IV section 3 does specifically mention new states, I fat fingured it, the correct section is 4 of Article IV., However, the words "every state in the Union...and shall protect EACH of them" is self explanatory.

[missingamerica]

"In other words, however bad things may have looked, they were actually worse..."

I suspect that there are a LOT of numbers extant that could stand being revised - now that the Administration that valued staying "on message" over truth is gone.

Given the "Us First!" nature of the Republicans which that last Administration so epitomized, any numbers that might have threatened the rate at which they accumulated wealth - like, for instance, numbers that revealed the damage being done by inequitable free trade and "trickle-down" economics - released between 2001 and 2009 are suspect.

[rickwar]

The Constitution of the United States of America,? Article 4, Section 3.
The United States shall guarantee to every state in the Union a Republican form of government, and shall protect each of them against invasion.
Posted by TPS2 at 2:51 PM : Feb 27, 2009


Out of context my friend, this is in regards to a "new" state.

[the74blaster]

Seems to me the REAL problems that caused all this mess are not being addressed. Company's being allowed for years to send jobs overseas or out of the country without any fear of being taxed higher or having us stop buying their goods. I have been saying for years to my co-workers- who is going to be left to buy homes, cars, stoves, if we keep bleeding jobs. Seems the answer is now clear, not enough of us have good paying jobs to buy at the costs out there today.

Posted by sogaman at 1:40 PM : Feb 27, 2009 ,

Excellent Post!!!! The only thing I would add is how are these people who have an estimated 45-50 trillion in personal debt going to pay it off if all the high paying manufacturing jobs are offshore?

Do anyone of you GOP free market-rocket-scientists want to try taking this question on? The fact is special interests have bought out both parties and used the free trade agreements to sell us this economic mess. We need to stand up and take our country back.

If we sit back it will be business as usual and then we will hear about the red meat issues that divided us in the first place..

[rickwar]

you people are so stupid and dumb as hell ....Don't you understand stand its a deliberate act by the federal reserve to destroy the world economy on the accounts of the american people ....They don't care how many people are out of work and how many companies go under as long as their set goals are achieved that why that jewbercon Bernankie buffoon is hiding and not doing anything cause he knows full well what is happening behind the scenes When you realize this you found the problem ...Then what you going to do nothing squat might as well shut up morons.....
Posted by shahzad7 at 1:54 PM : Feb 27, 2009

Thought I'd heard the biggest load of BS today, this one beats it.