US economy dips at slightly faster 6.3% pace

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

WASHINGTON – The economy shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, and probably isn't doing much better now.

Ruth Ann Slagle, left, looks over outdoor grills as she shops with sister-in-law Pat Costello to furnish her new home at a Costco store Tuesday, March 24, 2009 in Shoreline, Wash., a suburb of Seattle. [Agencies]

The Commerce Department on Thursday reported that the economy was sinking a bit faster than the 6.2 percent annualized drop for the October-December quarter estimated a month ago.

And the pain has persisted in the current quarter. New claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000, the Labor Department said Thursday. The total number of people claiming benefits jumped to 5.56 million, higher than economists' projections of 5.48 million, and a ninth straight record-high.

The figures indicate the labor market remains weak even as some other economic indicators come in better than expected.

Consumers are cutting back under the weight of rising unemployment, falling home values and shrinking investment portfolios. Those factors have forced companies to slash production and jobs. All the negative forces are feeding on each other in a vicious cycle that has deepened the recession, now in its second year.

Economists were bracing for an even sharper 6.5 percent annualized decline in the government's third and final estimate of gross domestic product for the fourth quarter.

Still, the results were dismal. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter came as the financial crisis - the worst since the 1930s - intensified.

The main culprit behind the GDP downgrade was that businesses' cut inventories more deeply than estimated a month ago. That shaved 0.11 percentage points off fourth-quarter GDP, rather than adding 0.16 percentage points in the previous report.

Builders also cut spending on commercial construction more deeply through previously thought.

Many analysts believe the economy will keep shrinking at least through the first six months of this year.

In the current January-March quarter, some economists believe the economy is contracting at a pace of between 5 and 6 percent. The government will release its initial estimate of first-quarter GDP in late April. GDP is the value of all goods and services produced within the US and is the best barometer of the country's economic fitness.

There were glimmers of hope on Wednesday that Americans' appetites to spend might be stirring again. Orders for costly manufactured goods and new-home sales both logged unexpected gains in February. But economists said neither result likely foreshadowed a lasting rebound.

Federal Reserve Chairman Ben Bernanke said the recession could end this year, setting the stage for a recovery next year only if shaky financial markets are stabilized.

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