Washington, DC (PressExposure) March 27, 2009 -- The U.S. economy shrank at a 6.3% annual pace in the fourth quarter, which made it the worst performance since 1982 and consumer spending, which accounts for about 70% of the U.S. economy, fell by 4.3% during the last quarter, marking the first back-to-back decreases in excess of 3% since record-keeping began in 1947.
The contraction in GDP (gross domestic product) was larger than the estimated 6.2% drop, the Commerce Department said today (March 26th), in Washington and a report from the Labor Department showed the number of people collecting jobless benefits this month rose to a record 5.56 million.
The GDP report also showed that corporate profits dropped by 16.5% in the fourth quarter from the previous three months, making it the biggest decline since 1953, and for all of last year, profits were down 10.1%, which was the biggest annual drop since 1970.
Recent reports do show however that retail sales, residential construction and home sales improved, which perhaps indicate that the last quarter's slump might give way to smaller declines in growth.
Michael Gregory, who is a senior economist at BMO Capital Markets in Toronto said, "It's a pretty dismal result, but given the slight improvement we're seeing in some of the recent indicators, I suspect the first quarter will be a little better than the fourth".
The U.S. economy grew 1.1% in 2008 which is pretty much in line with what was expected, since exports and government tax rebates in the first six months helped to offset the drop in consumer spending that followed them.
Some good news however, is that retailers are now doing better, and sales fell less than forecast in February and January's 1.8% gain was the biggest in three years.
What's more, builders broke ground on 22% more homes in February than in January, and sales of new and previously owned houses increased as well.