In Revision, G.D.P. Shrank at 6.2% Rate at the End of 2008
The economy at the end of last year contracted at a far faster rate than initially estimated, a government report released Friday said.
The decline in the gross domestic product — a measure of a country’s total output of goods and services — in the last quarter of 2008 was the worst since the 1982 recession, and indicates that the recession has been deeper than previously believed. Economists are expecting a similar drop in the first quarter of 2009 as well.
“What a ghastly report,” said John Ryding, chief economist at RDQ Economics. “Since the recession started in December 2007, this will almost certainly be the longest postwar recession, and now potentially the deepest one as well.”
With the exception of government spending, every major component of the economy shrank.
Output fell 6.2 percent at an annualized rate in the fourth quarter of 2008, revised downward from a previous estimate of a 3.8 percent decline. The drop was even steeper than many economists had feared — the consensus estimate had been a 5.4 percent decline — and was much lower than the 0.5 percent contraction from the previous quarter.
The Dow Jones industrial average and the broader S.&.P. 500 were down 0.95 percent and 1.32 percent in mid-morning trading.
The announcement comes on the heels of a new budget from the Obama administration that assumes what some economists had called, even before Friday’s bitter G.D.P. report, an overly optimistic view of the 2009 American economy. The
The economy took the biggest hits in exports, retail sales, equipment and software and residential fixed investment.
The downward revisions, though, came primarily because of a contraction in inventories of unsold goods, which the government had previously said had grown. Lower consumer sales sliced off some of the previously reported economic output, as well.
A wider trade gap than previously reported — that is, fewer American goods being purchased abroad — also pushed G.D.P. further downward. Exports fell at an annualized rate of 23.6 percent last quarter.
Some hail the decline in inventories as potentially good news.
“The only plus to take out of this is that inventories weren’t as high, and that implies you don’t have to cut as much this quarter to get them back under control,” Nigel Gault, chief United States economist at IHS Global Insight, said..
Mr. Gault added that inventories were still too large, given the declines in consumer spending, and he expected companies to further scale back their production this quarter.
During previous recessions, businesses’ inventories have declined much further than they did in the last quarter, said Robert Barbera, chief economist at ITG.
“In terms of inventory drawdown, we ain’t seen nothing yet,” he said. “Historically, was the decline in inventories in the fourth quarter impressive? No. Historically, in a tough recession, inventories fall at four or five times the pace of the fourth-quarter decline.”
Among the more distressing aspects of the report, according to Joseph Brusuelas, a director at Moody’s Economy.com, were the numbers for business investment. Investment in equipment and software, for example, fell at an annualized rate of 28.8 percent.
“We’re not going to have a consumer-led recovery out of the recession,” Mr. Brusuelas said. It will instead be led by the technology industry and businesses’ spending on capital investments, he said, which makes the fourth-quarter G.D.P. figures numbers “somewhat troubling.”
Many economists had been skeptical of the previously reported numbers in several sectors, inventories in particular. Some say the biggest surprises in Friday’s report were the magnitude of the revisions and the change in prices.
Prices fell in the last quarter of 2008, but they fell slightly less than previously reported, meaning that on an inflation-adjusted basis consumers spent even less than believed.
Households also saved much more of their paychecks than initially estimated.
“Much of the money that would have been spent on gasoline during the gasoline price decline in large part was saved rather than spent,” said Dean Maki, co-head of United States economics research at Barclays Capital.
Friday’s revision, which will be followed by a final number from the Bureau of Economic Analysis next month, usually garners little attention from analysts. But because the contraction was more severe than previously reported, and because the government has been grappling with how to remedy the recession, many are looking to the numbers for a clue for where the economy is headed.
Government officials and Wall Street analysts expect that the G.D.P. decline has bled into 2009, and many are anticipating a similar drop of around 5 or 6 percent for the first quarter of this year.
“This quarter will be at least as bad as the last one,” Mr. Barbera said.
The 2010 national budget released Thursday by the White House projected a 1.2 percent decline in G.D.P. over the course of 2009. The economy grew 1.1 percent during the full 2008 calendar year.
Consumer sentiment has also reflected the downturn. According to a report released Friday, from Reuters and the University of Michigan, an index of consumer sentiment fell for the first time in three months to 56.3 from 61.2 in January.
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