WASHINGTON -The U.S. economy shrank by a larger-than-expected annualized rate of 6.2 percent during the final three months of 2008, the worst showing in about 25 years, according to a revised government estimate out yesterday.
The new estimate of the fourth-quarter gross domestic product from the Commerce Department is far worse than the initial estimate of negative 3.8 percent and also larger than the 5 percent drop in growth most analysts had anticipated.
It's the largest contraction in one quarter since the first quarter of 1982, when the economy shrank by 6.4 percent.
The updated number is based on more complete information than was available for the earlier estimate. It reflects a much larger drop in exports, spending on equipment and software, and residential housing investment. The only major boost came from a decline in imports, which are a subtraction in the calculation of the GDP.
Nearly every segment of the economy contracted sharply during the fourth quarter, the data show. Consumer spending fell 4.3 percent, compared with 3.8 percent in the third quarter. Investment in office buildings, shopping centers and other nonresidential structures sank 5.9 percent, compared with an increase of 9.7 percent in the previous quarter. Real exports of goods and services fell 23.6 percent, compared with an increase of 3 percent in the third quarter.
As tax revenue plunged, state and local government spending also fell 1.4 percent, after rising 1.3 percent in the period from July through October. For all of 2008, the economy grew 1.1 percent, in contrast to an increase of 2 percent in 2007.
The day's news unsettled investors. Citigroup Inc. agreed to turn over a big piece of itself to the government, a move that fanned worries that other banks would face crippling trouble with bad debt. General Electric Co. slashed its quarterly dividend by 68 percent. Both companies are part of the Dow Jones industrial average, which fell 119 points.
In the Citigroup deal, the U.S. government will exchange up to $25 billion in emergency bailout money it provided the company for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises.
The deal represents the third rescue attempt for Citigroup in the past five months and is contingent on private investors agreeing to a similar swap.
The Commerce Department report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.
The faster downhill slide in the final quarter of last year came as the financial crisis - the worst since the 1930s - intensified.
Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.
Before yesterday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter. However, given the fourth quarter's showing and the dismal state of the jobs market, a decline of closer to 6 percent in the current quarter is possible.
The Associated Press contributed to this article.