Economy Shrank At 6.3% Pace To End Year

GDP Contracted Faster Than Estimated, Worst In 25 Years

(CBS/AP)  The economy shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, and probably isn't doing much better now.

The Commerce Department on Thursday reported that the economy was sinking a bit faster than the 6.2 percent annualized drop for the October-December quarter estimated a month ago.

And the pain has persisted in the current quarter. New claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000, the Labor Department said Thursday. The total number of people claiming benefits jumped to 5.56 million, higher than economists' projections of 5.48 million, and a ninth straight record-high.

The figures indicate the labor market remains weak even as some other economic indicators come in better than expected.

Consumers are cutting back under the weight of rising unemployment, falling home values and shrinking investment portfolios. Those factors have forced companies to slash production and jobs. All the negative forces are feeding on each other in a vicious cycle that has deepened the recession, now in its second year.

Economists were bracing for an even sharper 6.5 percent annualized decline in the government's third and final estimate of gross domestic product for the fourth quarter.

Still, the results were dismal. 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 came as the financial crisis - the worst since the 1930s - intensified.

The main culprit behind the GDP downgrade was that businesses' cut inventories more deeply than estimated a month ago. That shaved 0.11 percentage points off fourth-quarter GDP, rather than adding 0.16 percentage points in the previous report.

Builders also cut spending on commercial construction more deeply through previously thought.

Many analysts believe the economy will keep shrinking at least through the first six months of this year.

In the current January-March quarter, some economists believe the economy is contracting at a pace of between 5 and 6 percent. The government will release its initial estimate of first-quarter GDP in late April. GDP is the value of all goods and services produced within the U.S. and is the best barometer of the country's economic fitness.

There were glimmers of hope on Wednesday that Americans' appetites to spend might be stirring again. Orders for costly manufactured goods and new-home sales both logged unexpected gains in February.

That has some economists a bit more optimistic about the future.

"There may be some stability forming. That doesn't mean conditions are good. It just means that the bottom may be reached very soon," Joel Naroff, chief economist at TD Bank, told CBS News.

"The more recent numbers give us some hope that the decline in the economy is slowing and that ultimately we can see some growth as we move through the second half of this year," Naroff said.

Federal Reserve Chairman Ben Bernanke said the recession could end this year, setting the stage for a recovery next year only if shaky financial markets are stabilized.

Even in this best-case scenario, the nation's unemployment rate now at a quarter-century high of 8.1 percent, is expected to keep climbing in the months ahead. Economists predict the jobless rate could hit 10 percent at the end of this year.

More job losses were announced this week. Shaw Industries Group Inc., the world's largest carpet maker and a subsidiary of Warren Buffett's holding company Berkshire Hathaway Inc., said it would close two plants in Georgia and lay off about 600 workers. Pharmaceutical company Hospira Inc. said it would cut 1,450 jobs, or about 10 percent of its work force, while beleaguered automaker General Motors Corp. said it laid off 160 engineers, the beginning of 3,400 planned cuts among its salaried employees.

In the final quarter of last year, consumers cut spending at a 4.3 percent annualized pace, the same as previously estimated. It was the biggest decline since the second quarter of 1980. Consumers cut spending on "nondurables," such as food and clothes, at a 9.4 percent pace, the most on records dating to 1947.

Business cut spending on equipment and software by 28.1 percent on an annualized basis, the most since the first quarter of 1958.

Builder spending on commercial construction dropped an annualized 9.4 percent, the biggest decline since the third quarter of 2002. And home builders slashed spending by 22.8 percent, the most since the start of 2008.

The recession also is hurting corporate profits. One measure tied to the GDP report showed after-tax profits of U.S. companies dropped 10.7 percent in the fourth quarter, even worse than the 0.5 percent decline logged in the third quarter. Fallout from soured investments in mortgages and other investments figured into the sharper decline.

Both the new and old fourth-quarter GDP readings were the worst since the first quarter of 1982, when the economy, hit by a severe recession, contracted at a 6.4 percent pace.

To brace the economy, the Fed has slashed a key bank lending rate to an all-time low and has embarked on a series of radical programs to inject billions of dollars into the financial system.

The Obama administration is counting on a $787 billion package of increased government spending and tax cuts, a financial-bailout program and an effort to stem home foreclosures to help turn the economy around.

For all of last year, the economy grew just 1.1 percent, unchanged from the government's previous estimate. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

[sndkzyaa]

If you take the levels of the Dow Jones Industrial Average for 1929 and 1930, and multiply them by 32 to reflect the historical inflation rate, you get the following results:

The Dow peaked in September 1929 at the equivalent of 14,000

By the end of 1929, it had stabilized at the equivalent of 8,000

In the first quarter of 1930, it began a gradual recovery. By April, it had recovered to the equivalent of 10,000

If the Dow recovered to 10,000 next month, everyone would be jumping for joy.

But by the end of 1930, the market had dropped to the equivalent of 5000.

But this time around it's different. Now the market would have to rise several hundred points more just to catch up with the market close on the last trading day of the Bush presidency.

Instead of following a gradual recovery, it's struggling just to get back to Bush territory.

Who knew that in March we'd be missing the Bush years, when the market was above 8,000?

[sjc_1]

AKA "the wannabe poli-sci teacher".

At least he knows what he is talking about, instead of right winger lie slingers that want to pretend that what they say is true, because no one challenges them on their lies. This is why they hang out together, so they can tell each other lies and get away with it. Then they pretend that they have a gasp of some self generated "truth" and just keep repeating it to one another.

[sjc_1]

There is no immutable law that says you have to have recessions periodically. This is not a natural pattern like the weather. This is a man made system that goes bad when it is not managed. If you watch what is going on and control the outcomes, there is NO need for any recessions at ANY time.

[walt1944]

For the past 3 years of his reign, the former-Great Emperor Bush II had been looking for something to point to as HIS legacy for future Neocon Fascist Nazi Republicans to look up to.

Here it is!!!

The SHRINKING of the economy at a rate that hasn't been seen since 1984, when that other economic "genuis", Ronnie "Bonzo" Reagan, was sitting on the "throne" in the Oval Office, contemplating the huge profits to be made for Corporate America, and the total destruction of the middle class, all brought about by the insane notion of "trickle-down" economics, now stupidly adhered to by stupidly loyal Neocon Fascist Nazi Republicans everywhere!!!!

Only anyone sitting on a "throne" could ever think up something like "trickle-down" economics!

HAIL OBAMA!!!!

[clowry1611]

caliguy, AKA "the wannabe poli-sci teacher".

[caliguy55]

The Democrats did not control Congress in 2007, and they do not control Congress today. Because of arcane Senate Rules, it normally takes 60 votes to invoke cloture and bring legislation to the floor for a vote. The Democrats did not have 60 votes in the Senate in 2007, and they still don't have 60 votes. Thus, obstructionist Republicans can block Democratic legislation unless some Republican Senators are willing to vote with the Democrats. This was recently illustrated in the passage of the "Stimulus Bill", when 3 Republican Senators had to join with every Democratic Senator to pass the bill. Without these three Republican Senators, the bill would not have passed. So, those of you who keep parroting this nonsense about the Democrats controlling Congress need to educate yourselves on how the Senate works in reality. Now, I dare anyone out there to prove to me how the Democrats "control" Congress.

[caliguy55]

The Democrats did not control Congress in 2007, and they do not control Congress today. Because of arcane Senate Rules, it normally takes 60 votes to invoke cloture and bring legislation to the floor for a vote. The Democrats did not have 60 votes in the Senate in 2007, and they still don't have 60 votes. Thus, obstructionist Republicans can block Democratic legislation unless some Republican Senators are willing to vote with the Democrats. This was recently illustrated in the passage of the "Stimulus Bill", when 3 Republican Senators had to join with every Democratic Senator to pass the bill. Without these three Republican Senators, the bill would not have passed. So, those of you who keep parroting this nonsense about the Democrats controlling Congress need to educate yourselves on how the Senate works in reality. Now, I dare anyone out there to prove to me how the Democrats "control" Congress.

[hypnotoad72]

Well, it's only going to continue. Where are the green jobs looking for people to be educated? And what will ensure those won't get offshored after 2 weeks either? Other companies (are claimed to) give free training to people in those other countries. Why not here as well?

[caliguy55]

Bush really left office with a dud, i.e., the economy shrinking by 6.3%. This was caused by one thing, and one thing only, the policies that Bush and the Republican Congresses put into effect from Reagan's Presidency to the end of Bush's Presidency. Remember, it was three Republican Senators, who authored the bill repealing the Glass-Steagall Act. The repeal of this Act probably had more to do with our economic destruction than any other single act, except perhaps for the passage of Bush's tax cuts, which caused the federal debt to rise from 4.5 Trillion Dollars to 10.5 Trillion Dollars.

[clowry1611]

We will always blame you for this deregulated mess.
Posted by whitemale08
____________________________________________
You don't have to make that statement, we already know you will blame others because you are a democrat. that is just assumed whenever you enter the room ("he is the one that won't accept blame for anything" is whispered behind your back all the time). Obama wants to bring up a short memory, well how about his short memory when all the legislation came around the democrat controlled houses the last 2 years and were passed by them! oh i forgot he was busy lying to the public (AKA campaigning) so he could win the election

[Ichabod09]

Hey bubba, les see here how much air we can pump into this here balloon before it pops....when this mutha pops ya gon har it into tha next county.

[edward1975-2009]

Further proof that trickle down economics don't work. Only through the clearing of debt can we hope to recover. And unfortunately that won't occur with these bailout/stimulus packages. Obama and his advisers believe that just throwing money at the problem will fix it. There is no point in giving banks money to lend, if the people they are lending it to, can't pay their bills as it is. Your throwing gas on a fire, and creating just more debt. And bankrupting America. Time for our spineless Congress to wake up. But unfortunately for the American taxpayer, this Congress hasn't met a spending bill it didn't like.

[scb1111_1]

The economy shrank because Obama was elected and people started hording knowing Obama will come for their possessions and give them to the dark people.
Posted by Harry_Snapperorgans at 6:28 AM : Mar 26, 2009

Welcome to Obamanomics with "Obamaville" for everyone to live therein!

http://www.newsmax.com/insidecover/california_tent_cities/2009/03/26/196355.html

Thanks, LOSER of a President Obama!

[scb1111_1]

Welcome to Obamanomics with "Obamaville" for everyone to live therein!

http://www.newsmax.com/insidecover/california_tent_cities/2009/03/26/196355.html

Thanks, LOSER of a President Obama!

[whitemale08]

Thanks Nixon/Ronnie/Bush I & II/Hanity/Limbaugh

Thanks alot for this Republicans for this crappy econoomy.

We will always blame you for this deregulated mess.

[bubba027]

And even with this dire news still the Republican response is just more NO, NO, NO .... They need a depression so people will stop blaming them for the recession. They will still plead for tax cuts for the unemployed (oops). Republicans need to get with the program or just move out of the way.
Posted by afmcalax at 6:11 AM : Mar 26, 2009

Why are the looney left so easily willing to give up freedom and liberty just because we're in a recession when recessions are regular, relatively frequent, and predictable? I don't get it.

[stinger1z]

Is Bush still waiting for history to give him a fair assessment? Outcome doesn't look to good for him.

[aheadace]

I can tell you what is wrong with this country it's the REPUBLICANS

[afmcalax]

And even with this dire news still the Republican response is just more NO, NO, NO .... They need a depression so people will stop blaming them for the recession. They will still plead for tax cuts for the unemployed (oops). Republicans need to get with the program or just move out of the way.