Honey I Shrunk the Economy

As bad as the fourth quarter was, it was worse than anyone thought:

The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated by the government last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

The new report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. 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 of last year came as the financial crisis -- the worst since the 1930s -- intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.

Before Friday's report was released, many were projecting an annualized drop of 5 percent in the current January-March quarter. Given the dismal state of the jobs market, though, some economists believe an even sharper decline in first-quarter GDP is possible. A smaller decline was expected for the second quarter of this year.

The other economic news this morning is that soon you'll be able to buy large chunks of Citigroup with just the change in your pocket. I think we're in for another brutal day on the Dow.