Economy Nearly Sputtered Out at End of 2007, Probably Faring Worse Now.
The economy nearly sputtered out in the final quarter of last year and is probably faring even worse now amid the continuing housing, credit and financial crises.
The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading -- unchanged from a previous estimate a month ago -- provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.
The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.
Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6 percent figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.
The newly released fourth-quarter GDP figure matched analysts' expectations. Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes. Against that backdrop, builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.
To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans -- a privilege that had been afforded only to commercial banks.
Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3 percent pace in the fourth quarter. That was better than the 1.9 percent growth rate previously estimated but still marked a slowing from the third quarter's 2.8 percent pace.
Businesses -- nervous about customers' waning appetite to buy given all the problems in the economy -- cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.
Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2 percent growth rate. Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3 percent at the end of last year, after being flat in the prior quarter.
The economy nearly sputtered out in the final quarter of last year and is probably faring even worse now amid the continuing housing, credit and financial crises.
The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading -- unchanged from a previous estimate a month ago -- provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.
The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.
Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6 percent figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.
The newly released fourth-quarter GDP figure matched analysts' expectations. Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes. Against that backdrop, builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.
To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans -- a privilege that had been afforded only to commercial banks.
Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3 percent pace in the fourth quarter. That was better than the 1.9 percent growth rate previously estimated but still marked a slowing from the third quarter's 2.8 percent pace.
Businesses -- nervous about customers' waning appetite to buy given all the problems in the economy -- cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.
Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2 percent growth rate. Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3 percent at the end of last year, after being flat in the prior quarter.
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