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US economy dips at slightly faster 6.3% pace

(Agencies)
Updated: 2009-03-26 23:17

Even in this best-case scenario, the nation's unemployment rate now at a quarter-century high of 8.1 percent, is expected to keep climbing in the months ahead. Economists predict the jobless rate could hit 10 percent at the end of this year.

Related readings:  Obama seeks patience, says economy will recover  Obama says his budget essential to revive economy  IMF: World economy to shrink in 2009, first time in 60 years  Obama's popularity continues despite faltering economy

More job losses were announced this week. Shaw Industries Group Inc., the world's largest carpet maker and a subsidiary of Warren Buffett's holding company Berkshire Hathaway Inc., said it would close two plants in Georgia and lay off about 600 workers. Pharmaceutical company Hospira Inc. said it would cut 1,450 jobs, or about 10 percent of its work force, while beleaguered automaker General Motors Corp. said it laid off 160 engineers, the beginning of 3,400 planned cuts among its salaried employees.

In the final quarter of last year, consumers cut spending at a 4.3 percent annualized pace, the same as previously estimated. It was the biggest decline since the second quarter of 1980. Consumers cut spending on "nondurables," such as food and clothes, at a 9.4 percent pace, the most on records dating to 1947.

Business cut spending on equipment and software by 28.1 percent on an annualized basis, the most since the first quarter of 1958.

Builder spending on commercial construction dropped an annualized 9.4 percent, the biggest decline since the third quarter of 2002. And home builders slashed spending by 22.8 percent, the most since the start of 2008.

The recession also is hurting corporate profits. One measure tied to the GDP report showed after-tax profits of US companies dropped 10.7 percent in the fourth quarter, even worse than the 0.5 percent decline logged in the third quarter. Fallout from soured investments in mortgages and other investments figured into the sharper decline.

Both the new and old fourth-quarter GDP readings were the worst since the first quarter of 1982, when the economy, hit by a severe recession, contracted at a 6.4 percent pace.

To brace the economy, the Fed has slashed a key bank lending rate to an all-time low and has embarked on a series of radical programs to inject billions of dollars into the financial system.

The Obama administration is counting on a $787 billion package of increased government spending and tax cuts, a financial-bailout program and an effort to stem home foreclosures to help turn the economy around.

For all of last year, the economy grew just 1.1 percent, unchanged from the government's previous estimate. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

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