Economy Shrank Even More Than Feared at End of 2008

Revising an earlier estimate that the economy shrank 3.8 percent in the fourth quarter, the Commerce Department announced today that gross domestic product actually contracted by 6.2 percent—the worst rate in a quarter century and a percentage point worse than what most economists had predicted.

The news hit dispirited Wall Street hard, sending stocks down in early trading. Adding to investors' jitters, Citigroup said that it had reached an agreement with the government that could result in the U.S. Treasury having as much as a 36 percent stake in the company. That led to Citigroup's stock tumbling more than 30 percent in early trading.

The data about the economy's contraction were particularly worryisome. The figures show that almost every sector of the economy shrank quickly, even those that had grown in the third quarter. Real exports, which had increased 3 percent in the previous quarter, fell 23.6 percent, and investment in nonresidential buildings, like offices and malls, plummeted 5.9 percent after increasing 9.7 percent in the third quarter. Meanwhile, consumer spending declined 4.3 percent. It had fallen 3.8 percent in the third quarter,

Analysts had thought that the revised estimate would show that the economy shrank by about 5 percent in the fourth quarter. Along with having to change that thinking, they're also revising their initial predictions that the first quarter of 2009 would show some improvement. Instead, many say, it's shaping up to be the worst quarter of the recession yet.