The 3.8 percent annual pace of contraction in the final three months of last year was less than forecast, with a buildup 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.
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.
A separate report today showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.
GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News.
Consumer spending, which accounts for more than two-thirds of the U.S. economy, dropped at a 3.5 percent annual rate last quarter following a 3.8 percent drop the previous three months. It’s the first time purchases declined by more than 3 percent in consecutive quarters since records began in 1947.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.
Congress is considering a two-year fiscal stimulus package supported by Obama. House lawmakers this week passed the $819 billion measure.
The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Federal Reserve’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.
Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.
Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.
More cutbacks are on the way. Eastman Kodak Co., Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.
Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.
The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.
The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.
PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.
The slowdown in global demand indicates American exports are unlikely to contribute less to growth in early 2009. World growth will b...