MercoPress. South Atlantic News Agency

US economy at its worst in fourth quarter but could be bottoming out

The United States economy contracted at a stunning pace of 6.3% in the fourth quarter of 2008, the most in 26 years, as consumers cut down on spending and exports weakened.

“Real gross domestic product - the output of goods and services produced by labour and property located in the US - decreased at an annual rate of 6.3% in the fourth quarter of 2008” the Bureau of Economic Analysis said in a statement. The decline is higher than last month's official estimate of 6.2%.

The US GDP reportedly, has not shrunk as much since the first quarter of 1982. In the third quarter, real GDP dropped 0.5%.

The recession in the world's largest economy deepened in the fourth quarter of 2008 in the wake of the financial meltdown, which saw the collapse of many financial institutions in addition to massive job losses. The economic situation turned worse last year after the bankruptcy of Lehman Brothers in September. US officially entered into recession in December 2007.

For the full year 2008, the country's real GDP rose 1.1% against 2% in 2007.

Meanwhile US corporate profits plunged a record 120.1 billion US dollars in the fourth quarter shrinking at its fastest pace since 1982, showed US Department of Commerce data.

Unemployment is also clear evidence of the extent of the US recession, the number of workers collecting state jobless benefits rose to a record 5.56 million earlier this month, while new claims climbed to 652,000 last week, according to a separate government report.

The Commerce Department said after-tax corporate profits dropped 10.7% in the fourth quarter, the largest decline since the first quarter of 1994. Domestic profits of financial firms skidded 178.7 billion, compared with a 75.5 billion decline in the third quarter. Non-financial corporations' domestic profits tumbled 89.1 billion in the fourth quarter after increasing 52.1 billion USD in the prior period.

However recent data such as housing and retail sales have been surprisingly upbeat, raising cautious optimism that the recession is probably close to reaching a bottom. The economy is widely expected to start growing in the fourth quarter as the government's 787 billion US dollars stimulus filters through.

Business investment, typically made when companies are planning production increases, fell at a 21.7% rate, the biggest fall since the first quarter of 1975.

Residential investment fell 22.8% in the fourth quarter. Consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3% rate and exports were down 23.6%.

A separate report from the Labour Department showed the number of workers on state unemployment benefits surged 122.000 in the week ended March 14, from 5.44 million the prior week. That pushed the insured unemployment rate to 4.2% from 4.1% the prior week, the highest since May 1983.