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US Economy Sees the GDP Shrink 3.8% Last Quarter, Most in 26 Years

Posted on 30 Jan 2009

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The U.S. economy shrank the most since 1982 in the fourth quarter as consumer spending recorded the worst slide in the postwar era, a trajectory that's likely to continue in coming months.

The 3.8 percent annual pace of contraction in the final three months of last year was less than forecast, with a build-up of unsold goods cushioning the blow. Without the jump in inventories, the decline would have been 5.1 percent, the Commerce Department said today in Washington.

“It looks like the economy carried a lot of negative momentum into the first quarter,” former Federal Reserve Governor Laurence Meyer said in an interview with Bloomberg Television.

The economy is likely to contract further after retailers and manufacturers from Starbucks Corp. to Boeing Co. this week announced plans to slash payrolls and cut production to get rid of unwanted goods. Today's report will maintain the pressure on President Barack Obama to win quick congressional approval of a fiscal stimulus package in excess of $800 billion.

"Without the stimulus plan, the economy would be flat to declining in the second half of the year," said Meyer, who is now vice chairman of Macroeconomic Advisers LLC in Washington. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.