Quarterly data show a big drop-off in U.S. economic growth in late 2007, an indication the economy now could be shrinking.
WASHINGTON — The economy nearly sputtered out at the end of the year and is probably faring even worse now amid 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.
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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 economy just kept its head above water” in the fourth quarter, said Nigel Gault, chief U.S. economist at Global Insight. “We think that GDP will decline, albeit slightly, during the first half of 2008,” he said. “The first-half outlook is bleak.”
In another report, fewer people signed up for unemployment benefits last week, although that didn’t change the broader picture of a deteriorating jobs market. The Labor Department said jobless claims fell by 9,000 to 366,000, a better showing than many economists were forecasting. Still, unemployment is expected to rise this year, given all the problems clobbering the economy.
The newly released fourth-quarter GDP figure matched analysts’ expectations.
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.
There was a bright spot in the mostly gloomy report, however. Sales of U.S. goods and services to other countries grew at a 6.5 percent pace. That was better than the 4.8 percent growth rate previously estimated, although it was down sharply from the prior quarter’s blistering 19.1 percent growth rate.
An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9 percent in the fourth quarter. That was not as high as previously estimated but marked a big pickup from the third quarter’s 1.8 percent pace.
Another gauge showed that “core” prices — excluding food and energy — grew at a rate of 2.5 percent at the end of last year. That was below a previous estimate of a 2.7 percent pace but an increase from the prior quarter’s 2 percent growth rate.
The new core inflation figure is above the Fed’s comfort zone — the upper bound of which is a 2 percent inflation rate.