GDP Contracts 3.8% in Q4

The U.S. economy tightened at a 3.8 percent annualized rate in the fourth quarter of 2008  according to advance estimates released by the U.S. Department of Commerce Friday. This marks the worst performance for the U.S. economy in nearly 27 years, according to a Market Watch report. The fourth quarter figure is still less than the 5.5 to 6 percent annual contraction economists expected after real gross domestic product fell at a 0.5 percent annualized rate during the third quarter. However, the fourth quarter decline could have been worse, as the government counts unwanted buildups of inventory as growth. According to the report, the decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. Residential fixed investment — a component that includes spending on housing — dropped by a whopping 23.6 percent, reflecting the ongoing troubles in the U.S. housing market. Positive contributions came from private inventory investment and of course, federal government spending. The single largest component of GDP, consumer spending, fell 3.5 percent, far above second-quarter’s 1.2 percent drop, but below the 3.8 percent fall in quarter three. In a statement, Christina Romer, President Barack Obama’s chief economist, said the decline in GDP had spread throughout the economy, “emphasizing that the problems that began in our housing and financial sector have spread to nearly all areas of the economy.” Romer underscored the need that an “aggressive, well-designed” fiscal stimulus be enacted quickly. U.S. gross domestic product totaled $11.599 trillion in the fourth quarter, the government said. Write to Kelly Curran at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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