In more evidence of a deepening recession, new data released shows that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. That's the steepest contraction for any quarter since 1982 (when the economy contracted by 6.4 percent) and a sharp drop from the 0.5 percent decline in the three months earlier.
The news, released by the Department of Commerce today, was actually better than expected, as economists had been predicting a 5.5 percent decline in the gross domestic product (GDP). That leaves the question, however, of whether the recession has yet to bottom out.
Most signs are that the economy has continued to deteriorate since the start of the year, adding urgency to Congress' consideration of a massive government spending program to spur economic activity through public works projects, tax cuts, aid to state governments, and other measures. Economic analysts are warning the Congressional leadership that unemployment could hit double digits in the first quarter of this year.
The GDP report tops off a week of glum economic indicators. The Labor Department reported on Thursday that nearly 4.8 million Americans were receiving unemployment benefits by mid-January, the most since the data began to be tracked in 1967. The unemployment rate in December was 7.2 percent, the highest since 1993.
Also yesterday, the Commerce Department announced that sales of new homes fell almost 15 percent in December from the month before—and to 45 percent lower than in December 2007. And it reported that capital spending, or companies' purchasing of durable goods like machinery and computer equipment, fell for the fifth month in a row in December.
Meanwhile, more job cuts were announced this week. Photography giant Eastman Kodak said it plans to cut as many as 4,500 jobs, a fifth of its workforce, while airplane company Cessna announced it would lay off 4,000 employees. Truck maker Oshkosh said it would let go of about 1,000 workers. And British drugmaker AstraZeneca said it would cut 6,000 jobs, including an as-yet-unannounced number in the United States.
The White House said in a statement that the bad news underscores the need for a large stimulus package to jumpstart the economy. The House passed an $819 billion stimulus package supported by President Obama on Wednesday. The Senate will begin debating its version of the bill on Monday.
Corrected on 1/30/09: An earlier version had the wrong date in the headline. The economy's drop was the worst since 1982, as the story reported.