Economy in Worst Fall Since '82
Output Sank 6.2% Last Quarter; Plunging Trade, Investment Signal Trouble Ahead
The U.S. economy deteriorated far more than previously thought in the fourth quarter, according to new revisions of government data, casting fresh doubt about the chances of a recovery this year.
With falloffs in consumer spending and exports, gross domestic product declined at a 6.2% annual rate in the fourth quarter of 2008, according to a Commerce Department report Friday. The agency's first estimate for GDP, reported in January, was for a 3.8% decline.
The more recent figure -- which represents the steepest dropoff since the depths of the 1982 recession -- raises pessimism among economists. Until recently, many had been hoping for a rebound in 2009 and now sound downbeat about the remainder of this year.
Besides the revised GDP, economic indicators for the first two months of the year point to a deepening recession -- and the prospect of a dismal first quarter, too. Every week in February, more than 600,000 people filed new claims for unemployment insurance, and the unemployment rate rose to 7.6% in January, from 7.2% in December.
"The first quarter is going to be bad," said Christina Romer, chairwoman of the Council of Economic Advisers, at an economics gathering Friday sponsored by the University of Chicago and Brandeis University. She told the audience that Obama administration officials have been watching with deepening concern what's been going on around the world.
The U.S. has been hurt by the synchronized nature of the current global downturn. Exports declined at a 24% annual rate, compared with the 20% rate previously reported. Meanwhile, it appears the world's other economies truly fell apart in the fourth quarter. India reported on Friday its fourth-quarter GDP growth was lower than expected, while Japan said last week its GDP had contracted more than 12%. Growth in both Europe and the U.K. fell at an identical 5.9% annual rate. These numbers mean the U.S. can't lean on its trading partners to buy goods and help buoy business activity.
Private investment, which encompasses everything from business spending to homebuilding, fell at a 21% annual rate in the fourth quarter. That portends poorly for the first quarter of this year since one company's cutbacks in spending can lead another to do the same.
In Essex Junction, Vt., Bradley Aldrich, the president of an engineering firm, says he is putting off big purchases until he gets a clearer idea of where the economy is headed. His company, Forcier Aldrich & Associates Inc., spends up to $40,000 a year on various equipment. Mr. Aldrich has particular interest in a $30,000 software system that would allow the firm to hold a vast database of blueprints and other documents. He guesses it would save up to $5,000 a year in paper costs.
"It makes sense to do it, but with the economy the way it is right now we're reluctant to make the investment," says Mr. Aldrich.
Still, Ms. Romer strikes an optimistic tone about the prospects for a turnaround in the economy later this year. The Obama administration Thursday offered economic projections in its budget that were rosier than most private-sector forecasts. Defending the projections, Ms. Romer said a turnaround is likely this year as the federal fiscal stimulus package works its way through the economy...
Economy in Worst Fall Since '82 - WSJ.com