US GDP sees biggest drop in 27 years

Written by Reuters | Washington | Updated: Feb 1 2009, 05:24am hrs
The economy shrank at its fastest pace in nearly 27 years in Q4, government data showed on Friday, sinking deeper into recession as consumers and business cut spending.

In a report that showed a broad-based contraction nearly across all sectors, the commerce department said gross domestic product, which measures total goods and services output within US borders, plummeted at a 3.8% annual rate.

That was the biggest drop since the first quarter of 1982, when output contracted 6.4%, and highlighted that the housing-led recession, which started in December 2007, was gathering momentum.

These were the first consecutive declines in GDP since the fourth quarter of 1990 and the first three months of 1991.

Analysts polled by Reuters had forecast GDP contracting 5.4% in the fourth quarter after a 0.5% drop in the third quarter. They said the depth of the economic decline in the fourth quarter could have been masked by the $6.2 billion build up in inventories. I think the numbers are weaker than the better-than-expected headline reading suggests because the miss was mainly in what could have been an involuntary increase in inventories, said Dana Saporta, analyst at Dresdner Kleinwort.