Washington Battered by layoffs, debts and dread of worse to come, shoppers clutched ever tighter to their wallets in the final three months of 2008 and thrust the economy into its worst downhill slide in a quarter-century. Americans cut spending on everything from cars to computers, and it’s only getting worse so far in the new year.
All told, the economy staggered backward at a 3.8 percent pace at the end of last year, the government said Friday. And the tailspin could well accelerate in the current quarter to a rate of 5 percent or more as the recession churns into a second year and consumers and businesses buckle under a relentless crush of negative forces.
Spending cutbacks hit everywhere last quarter. Shoppers chopped spending on cars, furniture, appliances, clothes, food, transportation and more. Businesses dropped the ax on equipment and computer software, home building and commercial construction. And overseas sales of U.S.-produced goods and services tanked as foreign buyers grappled with their own economic woes.
It’s “a continuing disaster” for the nation’s families, declared President Barack Obama, making what has become an increasingly urgent daily pitch for his $819 billion stimulus package to revive the economy.
No one thought he was overstating. “It’s an economic hurricane,” said Richard Yamarone, economist at Argus Research.
On Wall Street, stocks tumbled for a second straight day. The Dow Jones industrial average slid 148 points.
With fallout from the housing, credit and financial crises — the worst since the 1930s — ricocheting through the economy, analysts predict up to 3 million jobs will vanish this year — even if Congress quickly approves the stimulus measure.
This week, tens of thousands of new layoffs were announced by companies like Ford Motor Co., Eastman Kodak Co., Black & Decker Corp., Boeing Co., Pfizer Inc., Caterpillar Inc., Home Depot Inc. and Target Corp.
“Everybody is trying to figure out how to survive,” said Brian Bethune, economist at IHS Global Insight.
The fourth quarter was by far the weakest in 2008. And the 3.8 percent figure is likely to be revised even lower as the government gathers more complete data. The economy is expected to remain feeble this year and into next year even if the recession ends in the fall, a best-case scenario.
Friday’s report tallied gross domestic product, the value of all goods and services produced within the United States. It is considered the broadest barometer of the country’s economic health.
The initial fourth-quarter result, released by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5 percent decline logged in the prior quarter. It marked the first back-to-back quarterly contractions since 1991.
A buildup in business inventories, adding to economic activity in calculating GDP, masked even deeper weakness. If inventories were stripped out, the economy would have contracted at a 5.1 percent pace in the fourth quarter. Businesses couldn’t cut production fast enough as customers stopped buying and got stuck with excess inventories, economists explained.