This is not good at all.
The United States economy shrank at its fastest pace in a quarter century from October through December, the government reported on Friday, as consumer spending and business investment collapsed, signaling more economic contraction in the months ahead.
In the broadest official accounting of the toll of the credit crisis, the government reported that gross domestic product shrank at an annual rate of 3.8 percent in the fourth quarter of 2008. While that was less than economists’ expectations of a 5.5 percent drop, the decline would have been much steeper — more than 5 percent — if shipments of goods had fallen as sharply as orders.
President Obama seized on the figures Friday morning, calling the contraction a “continuing disaster” for working families, and again urged Congress to pass a package of tax cuts and spending. The House, divided on party lines, passed an $819 billion stimulus plan on Wednesday, and Senate is expected to take up the measure next week.
“What we can’t do is drag our feet or delay much longer,” Mr. Obama said. “The American people expect us to act.”
The president also announced the creation of a Task Force on Middle-Class Working Families, which will seek to raise living standards of working families. It will be led by Vice President Biden.
Wall Street tumbled after the numbers were released, with the Dow Jones industrial average falling more than 100 points in midday trading. The broader Standard & Poor’s 500-stock index was down 1.5 percent.
The slide in gross domestic product — a crucial measure of economic health — is likely to continue at an alarming pace well into the summer as consumers continue to curtail spending and businesses reduce their capital investments and cut their payrolls, economists said.
In the fourth quarter, rising inventories accounted for the difference between the overall 3.8 percent contraction of the economy and a steeper 5.1 decline in final domestic sales.
“The difference between 3.8 and 5.1 percent is the inventory buildup,” Nigel Gault, chief United States economist at IHS Global Insight, said. “My only explanation is that companies could not cut production fast enough.”
With inventory accumulation gone, the economy will contract in the first quarter at more than a 5 percent annual rate, Mr. Gault said.
Employers reduced their corporate investments in computers, office equipment, machinery and other capital goods by an annualized 19.1 percent in the fourth quarter.
Trade fell, as Americans bought fewer Asian-made televisions and computers, and global demand for American goods and services ebbed. Exports in the fourth quarter declined 19.7 percent while imports dropped 15.7 percent.
Josh Bivens, an economist at the Economic Policy Institute said that the drop in exports was distressing because of their contribution to growth in recent years.
“That’s been a real key strength to the economy,” Mr. Bevins said. “They were punching above their weight for a couple of years, but they have really collapsed.”
And American consumers, who took on home equity loans and large amounts of credit card debt to finance their lifestyles earlier in the decade, curtailed their spending for a second consecutive quarter. Consumer spending, which typically accounts for two-thirds of economic growth, fell 3.5 percent in the quarter, after decreasing 3.8 percent in the third quarter.
With no end in sight to the downturn, the stark numbers on Friday are likely to intensify the debate over an enormous stimulus plan moving through Congress.
Christina D. Romer, chairwoman of President Obama’s Council of Economic Advisers, said the report offered more evidence that the economy continued to contract severely, and said “immediate action” was needed to shore up the financial sector and broader demand.
“Aggressive, well-designed fiscal stimulus is critical to reversing this severe decline and putting the economy on the road to recovery and improved long-run growth,” Ms. Romer said Friday in a statement.
Michael E. Feroli, a United States economist at JPMorgan Chase, said, “The fact that you’re not seeing any evidence that things are turning for the better has added quite a bit to the urgency to get things done and do something substantial.”
via Pullback Less-Than-Expected in 4th Quarter – NYTimes.com.
The downward spiral continues, the fallout from the breaking of the bubble that existed during the Bush Administration. The Bubble that was created by the Clinton Administration. Instead of listening to Ron Paul, who did have the proper correction for this mess; instead were are attempting to throw money at the problem, this will end in disaster. Ron Paul spoke about this, in a video that I posted. He also spoke with the people on MSNBC’s Morning Joe, here’s that Video: (Via Jack Hunter)
Of course, the mental midgets on “Morning Joe”, just did not get it at all. 🙄
