The economy shrank at a 3.8% pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending. Although the initial result was better than economists expected, the figure is likely to be revised even lower in the months ahead and some believe the economy is contracting in the current quarter at a pace of around 5%. The current January-March period, they say, will probably turn out to be the worse quarter for the recession. “The downturn is intensifying. The fourth quarter is worse than it looks,” says Mark Zandi, chief economist at Moody’s Economy.com.
The new figure, released today by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5% decline logged in prior quarter. The report provided clear evidence of the economy’s rapid deterioration as the housing, credit and financial crises — the worst since the 1930s — feed on each other. It’s a vicious cycle that has proven difficult for Washington policymakers to break.
The 3.8% annualized drop marked the weakest quarterly showing since a 6.4% annualized plunge in the first quarter of 1982, when the country was suffering through a severe recession. For all of 2008, the economy grew by just 1.3%. That was down from a 2% gain in 2007 and marked the slowest growth since the last recession in 2001.