Thread: Economy moving in reverse faster than predicted

Economy moving in reverse faster than predicted

Latest figures show economy is moving in reverse faster than government can predict

Jeannine Aversa, AP Economics Writer
Friday February 27, 2009, 8:02 pm EST

WASHINGTON (AP) -- The economy is moving in reverse faster than the government can measure.

AP - Kevin Callaghan of Missouri Valley, Iowa, delivers new Chrysler vehicles to a car dealer in Omaha, Neb., Friday, ...
The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday -- the largest revision since the government started keeping records in 1976.

That was the economy's worst showing in a quarter-century and raised the prospect that the nation could suffer its worst year since 1946.

"Consumers are just hunkering down and saying 'game over,' and businesses in response are cutting back on investment and employment," said Brian Bethune, economist at IHS Global Insight. "It's a negative feedback loop."

Now in its second year, the recession is expected to stretch at least through the first six months of 2009, as shoppers slash spending in the shadow of hard times at home and aboard.

Companies, in turn, are being forced to cut jobs and production while resorting to other cost-saving measures to survive.

The Commerce Department's new report was also weaker than the 5.4 percent drop economists had expected.

The biggest culprit behind the record-breaking revision: Businesses actually cut inventories instead of building them as the government originally thought. That reduced -- rather than added to -- economic activity.

In addition, consumers pulled back even more on their spending -- which accounts for about 70 percent of national economic activity. U.S. exports suffered a bigger drop and businesses retrenched further.

Many economists lowered their forecast for this year's gross domestic product to show a deeper contraction of at least 2 percent. GDP, the value of all goods and services produced in the United States, is the best barometer of the country's economic health.

White House press secretary Robert Gibbs said the latest GDP figure "underscores the urgency with which the president feels we have to move to improve our economy."

The economy has not suffered a decline for a full year since 1991, and that was just by 0.2 percent.

If the new projections prove accurate, it would mark the worst annual showing since an 11 percent plunge in 1946.

"The slide in our economy is very severe and very broad across all industries and regions of the country," said Mark Zandi, chief economist at Moody's Economy.com. "It is about as dark an economic time that we've experienced since the 1930s."

Before Friday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter.

Given the fourth quarter's showing and the dismal state of the jobs market, some economists believe a decline of closer to 6 percent in the current quarter is possible.

The nation's jobless rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the rate to climb to close to 9 percent this year, and probably will stay elevated into 2011.

California's unemployment rate jumped to 10.1 percent in January, the state's first double-digit jobless reading in a quarter-century. The jobless rate announced Friday by the state Employment Development Department is well above the national jobless rate, and represents an increase from the revised figure of 8.7 percent in December.

On Wall Street, stocks fell Friday as investors reacted to a decision by Citigroup Inc. to turn over a big piece of itself to the government and a move by General Electric Co. to slash its quarterly dividend by 68 percent. Investors also paid close attention to the lower GDP figures.

The Dow Jones industrials fell more than 119 points to 7,062.93, its lowest close since May 1, 1997.

The faster downhill slide in the final quarter of 2008 came as the financial crisis -- the worst since the 1930s -- intensified. Both the new and the old fourth-quarter figures marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

For all of 2008, the economy grew just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That was deeper than first reported and the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.

In the long run, the reduction in new projects should aid the housing market's recovery as fewer properties for sale help increase competition and stabilize prices. But at the moment, a stable housing market appears months away.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

http://finance.yahoo.com/news/Economy-s ... 91192.html

It has truly come at last. My close friends and associates know that I have been predicting this since 1999 and I had truly hoped the corrections would have happened in the 2000-2003 range.

If the corrections had happened earlier, things would not go as far down as they will now.

Bush and crew flooded the country with more bodies trying to prop up the mathematics. They went into hyper legal immigration mode while allowing millions of illegals in and this only extended the bubbles.

Now, the bubbles are collapsing and our nation tumbles into darkness with millions of people in the heart of our nation that do not like or appreciate America, Americans, or our values and principles that made this a once great nation.

All hell is about to break lose, but it will be our best opportunity to restore America if enough of us rise to the challenge.

But now as we prepare for the growing anarchy and or crack down we will face, we have to remember what has always followed a Global meltdown of this nature in the past.... Global War.

All peoples and all nations must strive to avoid this repeat of history because while the past World Wars were horrific and nightmarish, we did not have the ability to completely eradicate life on this planet as we do now.

The population density of 6.5 billion combined with our dependence on antibiotics, vaccinations, transportation, and refrigeration makes our house of population cards much more precarious.

These factors combined with the nuclear arsenals and biological and chemical weapons, including smallpox and super flu, raise the stakes.

Past World Wars reset the scales on these kinds of massive economic earthquakes at the cost of millions of lives and billions of dollars.

Each time a new order emerged in the world to restore stability afterward and even the defeated populations were allowed to prosper and move forward.

This time, we face an even greater risk where global conflict could result in massive and semi permanent damage to the entire planet and an impact on mankind that could set us back centuries in time.

If this Depression is followed by a new Global War, the casualties could be in the billions. If this Depression is followed by another WW, America may not win due to our weakened national security at the hands of those that have destroyed our borders, Constitution, principles, and freedoms.

We must move quickly and with great resolve to restore our republic and reinvigorate the strength that once flowed through America.

W