US economy suffers worst decline in 26 years

March 26th, 2009 - 10:23 pm ICT by IANS  

By Arun Kumar
Washington, March 26 (IANS) The US economy suffered its largest drop in 26 years during the last three months of 2008 with the nation’s gross domestic product declining by 6.3 percent, according to an official report Thursday.

The biggest drop since the first three months of 1982 in this key measure of economic activity was slightly worse than the government’s previous estimate of a 6.2 percent drop in the fourth quarter.

Economists surveyed by had forecast that GDP would fall 6.6 percent in the latest reading.

The report showed broad based declines across various measures of economic activity. Spending by consumers fell 4.3 percent, with purchases of big ticket items plunging 22 percent.

Investment in housing fell 23 percent from already depressed levels, completing three straight years of declines in the sector.

Investment in equipment and software, taken as a measure of business spending, plunged 28 percent. Exports tumbled 24 percent.

The economic problems have obviously not ended with the fourth quarter report, CNN said. Economists surveyed by the National Association for Business Economics forecast a 5 percent decline in the first quarter, which ends Tuesday, followed by a 1.7 percent drop in the second quarter.

Still, Bernard Baumohl, executive director of The Economic Outlook Group, cited by the news channel said that some recent economic readings on housing and retail sales that have come in better than expected in the last couple of weeks suggest that the recession may be approaching a bottom.

But other economists say it’s too soon to say the worst is over. Brian Bethune, chief US financial economist at Global Insight, was quoted as saying there needs to be signs of a more widespread economic recovery in the auto and retailing sectors before banks start lending again. He doesn’t expect even a modest pick-up in GDP until the fourth quarter of this year.

Meanwhile, the number of people filing initial claims for unemployment benefits rose last week, while those filing continuing claims hit an all-time high for the ninth straight week, the Labour Department reported.

In the week ended March 21, a total of 652,000 people filed initial jobless claims, up 8,000 from the previous week’s revised figure of 644,000.

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