US GDP Shows Biggest Drop in 27 Years

by Charlotte Cardingham
Posted by Hannah on 30 January 2009
US GDP Shows Biggest Drop in 27 Years

Initial figures suggest that the United States' GDP contracted at a 3.8% annual rate in the final quarter of 2008.

Figures out today revealed that the US economy contracted at its fastest rate in 27 years during the final 3 months of 2008.

Announced in an advanced report by the Commerce Depart, it appears that gross domestic product (GDP) - a measure of the goods and services produced in the United States - fell by an annual rate of 3.8% during the year’s final quarter.

Coming after a 0.5% output contraction in Q3, this represents the first consecutive drop in GDP since the early 90s.

While these sobering figures do much to bring home the true extent of the financial crisis that began in the US housing sector but is now hitting the economy as a whole, surprisingly the drop is significantly lower than the 5.4% contraction many analysts predicted.

However, rather than something to be celebrated, it is now expected that the first quarter of 2009 will instead shoulder the brunt of these optimistic results.

Speaking to Reuters Dana Saporta, analyst at Dresdner Kleinwort in New York, commented: "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.

"Because inventories rose in the fourth quarter we're expecting a bigger drop than otherwise in the first quarter of 2009 - a bigger drop in inventories and probably a bigger drop in GDP than otherwise."

Taken together, figures for 2008 as a whole suggest that GDP grew just 1.3% over the course of the year.   This represents the weakest growth since 2001 when the economy expanded just 0.8%.


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