The economy contracted at a staggering 6.2% pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession. The Commerce Department report released today showed the economy sinking much faster than the 3.8% annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4% annualized decline economists expected.
A much sharper cutback in consumer spending — which accounts for about two-thirds of economic activity — along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the large downgrade.
Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky. “Right now we’re in the period of maximum recession stress, where the big cuts are being made,” said economist Ken Mayland, president of ClearView Economics.