The U.S. economy continues in a dramatic slowdown.
The government reported today that real gross domestic product – the output of goods and services produced by labor and property in the U.S. – is estimated to have decreased at an annual rate of 3.8% in the fourth quarter of 2008 for the steepest decline since the recession of 1982. The third quarter of 2008 saw the economy shrink by .5%.
That was better than the previous estimate of a 5.4% decline, but the number is likely to be revised when the government has more complete information. It is expected that the U.S. economy will continue to shrink this year, possibly at an even faster pace.
A downturn in exports and a much larger decrease in equipment and software were the largest contributors to the dramatic decrease.
The one good thing out of all this – consumer prices were down 4.6% for the fourth quarter, mostly led by a decrease in gas prices. This comes after a 4.5% increase in the third quarter.
But even though the lower prices put less strain on the budget, consumers remain very cautious with their money. Consumer spending has decreased sharply over the last half of 2008 – down 3.5% in the fourth quarter, after a 3.8% decrease in the third. Spending on durable goods – such as cars and household furniture and appliances – dropped a whopping 22.4% in the fourth quarter after a 14.8% decline in the third.
Concerned over economic uncertainty, consumers continue to sock away the cash they aren’t spending at a faster pace, too. The personal savings rate increased to 2.9% in the fourth quarter, up from 1.2% in the third.
The poison that originated in the sub-prime mortgage market has spread through-out the nation’s economy, threatening the security of American’s jobs, homes, retirement, and the ability to send our children to college.
The Obama Administration is working on several plans to stem the crisis – the American Recovery and Reinvestment Plan, the use of the remainder of TARP funds, and the Middle Class Task Force led by Vice-President Joe Biden.
But even with swift action from the government, analysts expect the U.S. economy to get worse before it gets better. Hang on for a dismal 2009 and a slow recovery.
Source:
U.S. Department of Commerce – Bureau of Economic Analysis
The White House
