Hitting multi-decade lows...

Surely, we are seeing a an economic meltdown of note. Anyone that may have thought this is a typical V-shape recession will have to reconsider. The stock markets have been telling us that for months anyway, now the latest economical statistics coming out of the USA are confirming.

Rex Nutting of MarketWatch reports:

The U.S. economy was hitting on virtually no cylinders in the fourth quarter, as gross domestic product fell at the fastest pace since 1982 on sharp declines in consumer spending, investment and exports, the government said Friday.

GDP fell at a 6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported. It was the worst decline in GDP since a 6.4% decrease in the first quarter of 1982.

"Economic developments in recent months have been consistently worse than the worst-case scenarios," noted Stephen Stanley, chief economist for RBS Greenwich Capital.

Economists surveyed by MarketWatch had expected a revision to a 5.5% decline, based on updated monthly data on inventories, exports and other key measures. The revision showed inventory investment and exports "substantially weaker" than first reported, the government said. Consumer spending was also revised lower.

Final sales of domestic product fell 6.4%, the worst since 1980. Final sales to domestic purchasers, a measure of domestic demand, fell 5.7%, also the worst since 1980.

Unadjusted for price changes, GDP fell 5.8% to an annual rate of $14.2 trillion in current dollar terms, the data showed.

The recession that began in December 2007 intensified in the fourth quarter following the government rescue of several large financial institutions and the collapse of Lehman Bros. The ensuing credit squeeze has driven consumer and business confidence to generational lows, and cost nearly 2 million Americans their jobs.

Economists don't expect any relief in the current quarter, which ends March 31. The current projection sees first-quarter GDP falling at a 4.8% annual rate. Since 1947, GDP has never fallen by more than 4% for two quarters in a row.

Most economists don't expect GDP to grow until the second half of the year, when the leading edge of the $787 billion fiscal-stimulus plan begins to have an impact.

"We are in the midst of the worst recession in the post-war period, even factoring in the massive stimulus program," wrote Nariman Behravesh, chief economist for IHS Global Insight.
Federal Reserve Chairman Ben Bernanke said earlier in the week that he was confident the economy would rebound modestly later this year and into 2010, but only if the government's efforts to stabilize the banking system prove successful. Just as the GDP report was released, the Treasury Department reached an agreement to bolster Citigroup Inc.'s balance sheet by converting earlier taxpayer investments into common equity shares.

There were a few bright spots in the GDP report. Prices fell at the fastest pace on record, helping consumer and businesses' purchasing power. The personal consumption expenditure price index fell an annualized 5%, a record, while core prices rose just 0.8%. Real disposable incomes increased at a 3.4% pace. Another bright spot was the government sector, which added 0.3 percentage point to GDP growth.

But most of the report could only be described as ugly. Consumer spending fell at a 4.3% pace, the worst since 1980, and subtracted 3 percentage points from growth in the quarter.
Spending on durable goods plunged 22.1%, the worst since 1987, while spending on nondurable goods fell a record 9.2%. Spending on services rose, up 1.4%.

Meanwhile, business investment dropped 21.1%, the worst since the 1975 recession. Investments in equipment and software fell an eye-popping 28.8%, the worst since the 1958 recession. Spending on structures fell 5.9%, the first decline in more than three years. Business investment subtracted 2.5 percentage points from growth.

Residential investment fell 22.2%, the 12th consecutive decline in the sector where all the trouble began. Housing investments subtracted 0.8 of a percentage point from growth.

Export growth had kept GDP positive during the first two quarters of the recession early last year, but global growth has now collapsed, kicking away the main source of support for the U.S. economy and its workers.

Exports fell 23.6% in the fourth quarter, the most since 1971, reflecting the global recession that is hitting Europe, Japan and other trading partners even harder than the United States. Exports of goods dropped 33.6%, also the worst since 1971. Imports fell 16%, the most since 1980, as U.S. consumers and businesses just stopped spending. Exports subtracted 3.4 percentage points from growth, while the decline in imports added 3 percentage points.

Inventory building added 0.2 of a percentage point to growth. Higher inventories should be considered a negative for future growth, as firms will have to reduce production while they work down their stocks to meet demand. However, inventories built up much less than first reported a month ago.

For all of 2008, GDP increased 1.1% despite the economy being in a recession for the entire year. Growth was boosted 1.4 percentage points by the improvement in the trade balance. Government spending contributed 0.6 of a percentage point to growth, with consumer spending and business investments each adding 0.2 of a point. But, on the downside, residential investments subtracted 0.9 of a percentage point in 2008, and inventories subtracted 0.2 of a point.