WASHINGTON, Feb 28 (AFP): The US economy contracted a stronger-than-expected 6.2 per cent in the fourth quarter, government data showed, highlighting the stunning meltdown in activity late last year.
The Commerce Department reading on gross domestic product (GDP), the broadest measure of output, was far worse than the negative 5.4 per cent annual rate expected by most analysts.
The grim number underscored the challenges facing President Barack Obama, who took office nearly six weeks ago amid the most severe economic crisis since the Great Depression, with no clear sign of recovery in sight.
The fourth-quarter contraction was the sharpest since the first quarter of 1982, the data showed, and came as the world's largest economy was winding up a full year of recession.
The revised Commerce Department estimate of GDP marked a whopping 2.4 per centage point change from an initial 3.8 per cent contraction.
Obama has moved swiftly to put economic recovery at the top of his agenda. The Democratic president injected a 787-billion- dollar stimulus into the moribund economy last week, and on Thursday unveiled an unprecedented 3.55-trillion-dollar budget plan that shifts government spending into high gear.
News of the sharper-than-expected contraction in the 2008 fourth quarter stoked fears about the depth and duration of the recession, and doubts about the government's ability to get the economy back on track.
Mark Zandi, chief economist of Moody's Economy.com, told The New York Times that he now placed the odds of "a mild depression" at 25 per cent, up from 15 per cent three months ago.
In his view, the unemployment rate would reach 10.5 per cent by the end of 2011 -- up from 7.6 per cent at the end of January - - average home prices would fall 20 per cent on top of the 27 per cent they have plunged already, and losses in the financial system would more than triple, to 3.7 trillion dollars, the newspaper said.
The Commerce Department said the revisions were broad based but led by three pillars of the economy: consumer spending, which drives two-thirds of activity; exports; and inventory investment.
Bucking up the economy was federal government spending and investment, which rose 6.7 per cent in the fourth quarter after a 13.8 per cent rise in the third.
US exports of goods and services plunged 23.6 per cent in the October- December period after an increase of 3.0 per cent in the third quarter.
The sharp contraction was partially offset by a 16.0 per cent decrease in imports as consumers and businesses sharply curbed spending amid rising unemployment, tight credit and turbulence on financial markets.
Consumer spending dropped 4.3 per cent despite deeply discounted year-end holiday sales, building on a decrease of 3.8 per cent in the third quarter.
Spending on equipment and software fell off a cliff, down 28.8 per cent from a 7.5 per cent drop in the prior quarter.
Prices in the fourth-quarter fell 4.1 per cent after climbing 4.5 per cent in the third quarter. Core inflation, excluding volatile food and energy prices, slowed to a 1.1 per cent rate from 2.8 per cent in the prior quarter.
Private businesses pared back inventories more deeply than previously estimated, by 19.9 billion dollars. "The decrease in inventories brings a positive note to the report," said Natixis analyst Elsa Dargent.
For the full year of 2008, the economy grew at a modest 1.1 per cent annualised rate, the weakest pace since 2001, the data showed. In 2007, GDP rose at a 2.0 per cent rate.
