The US economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed, sinking deeper into recession as consumers and business cut spending.
The Commerce Department today said gross domestic product, which measures total goods and services output within US borders, plummeted at a 3.8 per cent annual rate, the lowest pace since the first quarter of 1982, when output contracted 6.4 per cent.
GDP fell 0.5 per cent in the third quarter. These were the first consecutive declines in GDP since the fourth quarter of 1990 and the first three months of 1991.
Analysts polled by Reuters had forecast GDP contracting 5.4 per cent in the fourth quarter. The US economy slipped into recession in December 2007, driven by the collapse of the housing market and resulting global credit crisis.
For 2008, GDP rose 1.3 per cent, the slowest pace of growth since 2001, when the economy expanded 0.8 per cent.
The advance report from the Commerce Department showed consumer spending, which accounts for two-thirds of US economic activity, fell 3.5 per cent in the fourth quarter after declining 3.8 per cent in the third quarter, also the first consecutive drops since the last quarter of 1990 and the first quarter of 1991.
Spending on durable goods like cars and furniture plunged 22.4 per cent, the steepest decline since the first quarter of 1987.
In response to the slump in demand, investment by business slumped 19.1 per cent for the sharpest pull-back since the first quarter of 1975. Residential investment plummeted 23.6 per cent.
The sharp economic downturn is putting a lid on inflation pressures, with the personal consumption expenditures price index plunging a record 5.5 per cent after rising 5 per cent in the third quarter.
Excluding volatile food and energy items, core prices grew at a muted 0.6 per cent, the slowest rate since the fourth quarter of 1962. Core PCE rose 2.4 per cent in the third quarter.
Analysts polled by Reuters had forecast the PCE index falling 5.4 per cent.
Reuters