Economy moving in reverse faster than predicted

Posted by Lauren Cappelli

WASHINGTON (AP) - The economy is moving in reverse faster than the government can measure.The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday — the largest revision since the government started keeping records in 1976.

That was the economy's worst showing in a quarter-century and raised the prospect that the nation could suffer its worst year since 1946.

"Consumers are just hunkering down and saying 'game over,' and businesses in response are cutting back on investment and employment," said Brian Bethune, economist at IHS Global Insight. "It's a negative feedback loop."

Now in its second year, the recession is expected to stretch at least through the first six months of 2009, as shoppers slash spending in the shadow of hard times at home and aboard.
Companies, in turn, are being forced to cut jobs and production while resorting to other cost-saving measures to survive.

The Commerce Department's new report was also weaker than the 5.4 percent drop economists had expected.

The biggest culprit behind the record-breaking revision: Businesses actually cut inventories instead of building them as the government originally thought. That reduced — rather than added to — economic activity.

In addition, consumers pulled back even more on their spending — which accounts for about 70 percent of national economic activity. U.S. exports suffered a bigger drop and businesses retrenched further.

Many economists lowered their forecast for this year's gross domestic product to show a deeper contraction of at least 2 percent. GDP, the value of all goods and services produced in the United States, is the best barometer of the country's economic health.

Click for full article