28 Feb 2009

US economy suffers sharp downturn

7:24 am on 28 February 2009

The United States economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2% annual rate as exports plunged and consumers slashed spending.

A month ago, the Commerce Department had estimated the economy shrank at a 3.8% pace in the October-December quarter.

Downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday.

The Commerce Department said consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3% rate in the fourth quarter, the biggest decline since the second quarter of 1980.

That sliced 3.01 percentage points from GDP.

Households are bearing the brunt of the 14-month downturn, triggered by the collapse of the US housing market and a resulting global credit crisis as companies have slashed payrolls.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6% annual rate, the steepest plunge since 1971.

Inventories, which minimized the fall in the first snapshot of GDP last month, when they were estimated as rising a surprising $US6.2 billion, were revised to show a $US19.9 billion decline in the fourth quarter.

Further highlighting the severity of the recession, business investment fell at a 21.1% rate, the largest drop since 1975.which took away nearly 2.5 percentage points from overall GDP.

Analysts said while the fourth quarter would probably be the weakest period in the current downturn, prospects for the first three months of 2009 are also bleak, with data so far pointing to another deep contraction.