Watch CBSN Live

Last Year's Economy Worse Than Imagined

The recession inflicted even more damage on the economy last year than the government had previously thought.

The Commerce Department, in revisions issued Friday that date back to the Great Depression, now estimates that the economy grew just 0.4 percent in 2008. That's much weaker than the 1.1 percent growth the government had earlier calculated.

Behind the downgrade are several factors: Consumers cut spending 0.2 percent last year, compared with a 0.2 percent increase previously reported. And the housing market sank further in 2008 than was thought. Builders slashed spending 22.9 percent, more than the 20.8 percent cut previously estimated.

Economic activity in the first quarter of last year turned out to be negative: It dipped at a rate of 0.7 percent. That was in contrast to the 0.9 percent growth previously estimated.

The economy grew in the second quarter, but less than was thought. And for the third quarter, the drop in economic activity was deeper than previously estimated.

The final quarter of 2008 showed an annualized drop of 5.4 percent - steep, but not as much as the 6.3 percent annualized decline earlier estimated.

Also on Friday, the Commerce Department reported the economy sank at a pace of just 1 percent in the second quarter of the year, a better-than-expected showing that provided the strongest signal yet that the longest recession since World War II is finally winding down. Many economists were predicting a slightly bigger 1.5 percent annualized contraction in second-quarter GDP.

About every five years, the government issues sweeping revisions to past estimates of gross domestic product, or GDP. The GDP, which measures the value of all goods and services produced in the United States, is considered the best barometer of the country's economic standing.

The latest revisions reach back to 1929. They are based on more complete information, as well as changes to methodology intended to more accurately gauge the nation's economy.

All told, the revisions going back decades made little difference in the U.S. economy's historical picture. For 1929 through 2008, the economy's average annual growth rate was 3.4 percent - a tiny 0.1 percentage point higher than the old data showed.

"Despite the revisions, we are not rewriting economic history," said Brent Moulton, an economist at the Commerce Department's Bureau of Economic Analysis who helped oversee the comprehensive revisions.

Americans' personal savings rate - savings as a percentage of after-tax income - was revised up for 2008. The new figures show the savings rate last year was 2.7 percent, up from 1.8 percent previously estimated.

That was reflective of the thriftier behavior Americans have adopted since being clobbered by rising unemployment, falling home values and cracked nest eggs.

View CBS News In