U.S. economy plummets

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2 percent annual rate as exports plunged and consumers slashed spending.

A month ago, the Commerce Department had estimated the economy shrank at a 3.8 percent pace in the fourth quarter.

But downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday, just shy of the 6.4 percent rate drop seen in the first quarter of 1982, when the economy was in a recession that lasted 16 months.

"They (numbers) show a very depressed state of the economy at the end of last year and point to it continuing to be equally bad in the first part of 2009," said Bill Cheney, chief economist at John Hancock Financial in Boston.

"This is really as bad as we thought it was before they originally released the numbers. It should temper the shock and surprise."

The dour data and a move by the government that could boost its equity stake in Citigroup to as much as 36 percent hammered U.S. stocks to 12-year lows. The Dow Jones industrial average ended down 119.15 points at 7,052.93. Government bond prices fell, bruised by record issuance this week.

A separate report showed mounting job losses had turned consumers gloomier in February, evidence the U.S. recession continues to deepen. The final Reuters/University of Michigan consumer sentiment index for February fell to 56.3 from January's 61.2.

CONSUMER SPENDING FALTERS

The Commerce Department said consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3 percent rate in the fourth quarter, the biggest decline since the second quarter of 1980.

The spending decline lopped more than 3 percentage points off GDP. Last month, consumer spending was estimated down at a 3.5 percent pace.

Consumer spending contracted for a second straight quarter.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6 percent annual rate, the steepest plunge since 1971. That was revised downward from the 19.7 percent drop estimated in last month's report.

Inventories, which minimized the fall in the first snapshot of GDP when they were estimated as rising a surprising $6.2 billion, were revised to show a $19.9 billion decline in the fourth quarter.

Further highlighting the severity of the recession, business investment fell at a 21.1 percent rate, the largest drop since 1975, from a previously estimated 19.1 percent decline. That took away nearly 2.5 percentage points from overall GDP.

Companies are aggressively scaling back to cope with a slump in demand, but those actions -- including big job cuts -- are translating into further reductions in household incomes, exacerbating the slump.