Economy Sinks Under Weight Of Inventory

Boeing, which plans to cut 4,500 jobs this year, was among U.S. companies to announce major layoffs this week.
Boeing, which plans to cut 4,500 jobs this year, was among U.S. companies to announce major layoffs this week. (By Ron Wurzer -- Bloomberg News)
Quarterly Percent Changes in Annual GDP Rate
Bureau of Labor Statisics , Bureau of Economic Analysis, Post
By Neil Irwin and Annys Shin
Washington Post Staff Writers
Saturday, January 31, 2009

Consumers didn't consume, businesses didn't invest, overseas buyers of American goods didn't buy and unsold products piled up in warehouses in the final months of last year. Those factors combined to drive the economy to its weakest quarter in nearly three decades and signaled that the worst is still to come.

New government data showing that the economy contracted at a 3.8 percent annual rate in the fourth quarter was not as grim as economists had forecast. But the data on gross domestic product, released yesterday by the Commerce Department, were a portrait of an economy in a deep and broadening recession. Business inventories swelled as consumer appetites waned, suggesting that companies will cut their excess stockpiles and curtail new orders this year, pulling down growth in the months ahead.

Wall Street showed little enthusiasm on the report. The Dow Jones industrial average tumbled 1.8 percent, or 148 points, to 8001. At the White House, President Obama seized on the news to again urge Congress to pass his stimulus package, saying America's working families are facing "a continuing disaster."

It was a bleak end to a week of dismal economic news. U.S. companies in recent days announced layoffs at a frenzied pace, with companies including Boeing, Pfizer, Caterpillar and Target saying they planned to cut tens of thousands of jobs. Yesterday, Procter & Gamble, the giant consumer products company, cut its profit forecast in a sign that Americans are scrimping even on staples like Crest toothpaste and Tide detergent.

Not all companies suffered. Exxon Mobil reported a sharp drop-off in fourth-quarter earnings but still logged a record $45.2 billion profit for the year.

Analysts yesterday said the more they looked at the new data on GDP, the broadest measure of the nation's economic output, the worse matters seemed.

"Initially a cheer went up," said Mike Schenk, a senior economist at the Credit Union National Association. "But reality quickly set in, and as I look at these numbers, there's really nothing to be excited about."

GDP has four main components: consumption, investment, government spending and net exports. There were worrying signs yesterday on all fronts.

Exports, which kept the economy afloat for much of 2008, fell 19.7 percent, as the bottom fell out of the economies in nations around the world that buy American goods.

Government spending rose overall, but state and local government spending fell, indicating that the dire fiscal situation facing many municipalities is causing them to cut back.

Business investment, which had held up reasonably well through most of last year, plummeted, with spending on equipment and software down at a 27.8 percent pace. Investment in housing, which didn't seem like it had much further to fall, dropped at a 23.6 percent pace.

The biggest component of the nation's economy, consumer spending, dropped 3.5 percent, driven down most sharply by Americans' reluctance to buy automobiles, furniture, appliances or other durable goods. Consumers lack confidence about the future, their incomes are declining because of the moribund job market, and they are struggling to get credit to make major purchases.

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